iA:~;~~~OBI~~; i\iANPFAQTVRER~ 'A~'S'P~1.'\.:TI()l'f, I~c.,;,:, '.,,'c';-": 'i~i ',< '.':,::::; ,';'.',1 ;:;" ",:,1, D(1.tr,of,t",M,'Y/!J,,;)June..1,4Jl,!:)65~

Senat6rJoHN,L,;MoCL--Ei.+.~N;., '~"I' , _ .","H!!f:!J ..... ,:.... ,Ohairman, Sub oommsuee on :Pat6n,t.S; ;Tr;.ailema.r1I;s,<-!/fHl;!Qop,1!1iifl:M,s,Oom-mit,t,efM1J, t~e.JudiaiJII(Y;'." ;U.s. $ena,te,·,Was,hingt,on,l);(J.

DEAR'.'SENATOR 'McCtELLAN :,.The' Patent oommttteeror-tneantomcone:·Manu­faeturers ::Association, )lnc.;;apIn'eci,ates' this :'i,opp'ortunity""to', 'express' dts -vtews.wbtlr-regardetorthetSaltonstall- bin S;'789,' t-he:McOleijau";'bill;'S.;'-1809,':,and 'theLong ,bill, S.,1899,all of which relate to Government.patent pollcy. . . ,.. , '.

'kfter 'careful sttidy: of, each 'ofothese Ieglslatdve-proposalsa the! members, of thecommittee'voted -to.endorse'your bill S.,1809;:iJi';prefe:renee,to' R,'789,i as-represent-:tng the, most -reasonable approach "to e. solution; to'rthe-prbldem.tof-, detenntntng .property.rrights 'as-between !thei!Gowernment',and Its contraetoradn .tnventtonsmade,' through·w'e"exp,endlture.· ofr ;Public'ifunds"i"The: committee Ls.trongly,,;op,.;posed 8.,1899. . .. . .. . ,. ..,

In: endorsing:8;"1809,-tbe. committee; requested rthat .sertous.. conslderatton .begtven.rto .thefollowing- suggestions. for, amendment dJf,:the,:bill-rwrhich: .they, believa,winbenefit both Governnrenc.andtlndustryc ,;: ,:",,/;, : .';";'," " .. ':'" ;.;.',.,,; ,,', .. :,,:

In section 3(a), to be consistent with the aforementiop,eQ."clefW-i-ttons,d:t ,al):-.pears, that, the :word: :"person!' .:iu:Une: 16:,sho:uldliItea:d,:,':contr.acto~.'!! i ,!~D:p.e; lat~er

licenses sutnceandincentive, to,develop civilian .uses is.n,ee4e,dtp.~llspi.re; c~e~l:tiyityfor"economie"growth.:,::,: ,:,',;,'" ",;;, -:-"',,, ',',,-,:,- !,:~,'<,: .... ,-: c'i':' ,': '''' .., ,' .

.More .ltberal ,ways::o.t:,,\lea~ing.,w~~h: JIlVe:I;l.to.r_S .and !~riWtiye, .s~ientists,"will..beforthcoming by Government and industry through realistic code of creativity ~();J;,R.&' Dcstafts- of .the .Govemment, :ThJs .,~~ll,g1il,l~lWJ).y: ;c~1,1s,e. -In<1u8~r.y; ~t:> .pevtaetheir' thoughtless ways of; trf:!fittng; i:p;y'~n,t()r~hand br,ing,;l;J,~t.tgJ;'·,Q.,w~rds ,anq..royalt;r )without; so.muchIegal. d~laysialld'G.9s~.,;:O:r;~,~1;ivtty~ill-.d,()"InQre,tJ;um,any factorin ,raising! the; percentage,;()f',~onotn:i~ gr.Q':Yith· ;aI}.p-, .ts i ~~I?;; b:e,~t ~9un,.t€!r .rcrce.to'Panklnson'eolaws,. ';I';, ~ . '.,jJi' ., "

A~lEkI6AN :'SOb'iE:T:Y" ;fo:R'pH:iR~,ic()i<1~,':,j:: ,A~'P,:E~ERIMEliTAL THE~.6PEUTlpS! ~~~.•' ,,"'-

''-'-, ,_ ,:,,,:, -' ""', """ ". " .' ',?,7i,~l~4~l7jh~(J,;',:ra:'! A:,!,:,ui!N "rq~,l96i(,.:H:o'n~ JQHNL', M90LELLAN;' ,';' "".:,,---',' ',',';,:,,"',);'. ,:.,',", "::".,,Ohairntan,.$u.bo,omm:it.te,e" on ?,atents" >Tr;a,a,ernafk,$" q;rt(l, ,(Jo:p:iJri{/ht~, l)P1n~i,t,tee 011­,,; >,(11;6 .ro/faf<J!.a,'r;Y1U:#~:S,~rta~6, .-Wq,shl'n:r(tq'tt.,/?J?,. ,:.-,', ) --;';; ",.i i ;Li;"'i' ':,-,'",' ...•. .: :.:" ,

;;DEAR :SENAT:ORMcCLELLAN,: ,The American: Society,;fpr ·:P;t;larmftcology",and,: :E;X::-~',

peri-mental: 'I'herapeutdcsds.:gravely concerned QVer, .the., effects •.·whlch.cpending ,Iegislatdonoin particular-S: 1809,·.maY:,hav:e .on.reecarchrcograms.or uniYersityand .other, laboratcrtea. which "are- supported: jointly,: by .both -governmentaf-andnongovernmental' funds- , It Is-feared -that: unless: the. .equltles. of all, parttes.areproperly,recognized; .the tradttdonahcollaboratton .of.governmental; .. acaderutc.iandluduatrtal organizations' In-research and .devetooment..mar. 'be' jeopardized; and!progress forthe.benefltof.the.publtc .tnerebz. stifled; 'A.:ecordingly,at the businessmeeting of our membership which was held at the,Uni,:v:ers-ity orPennsrtvantatn:Ph-iladelphia .on ~ugti.st:,19;;'1965, .es a ,:part. -of-our .fall meeting, .fhe. follow:ingresolutionwas passed which I was-instructed:to trensmtttoyouc r.: '. ':....•. , ;'.' i

",The free enterprise :sy.stem(thesource of,'many:bene-ftts to the, .publfc health;is based in: part-on- the' 'concepts' 'or;patent .rtghts and, of, the.eaclustsecontrolt of:an' Invention-for! a limited' period; :.!.:legislation .deflning the .asslgnment of [inven­tions made in laboratories-andby' scientdsteenjoylng supportrrompublterunds:should-preserve.wisely the :prinCiple·'of·patent;:profection, The rights ofvthepublic, to' 'benefit' t'_ully'. rrom. the '. fruits" of: public, .research .must be, maintained iwith()ur destroying 'the' 'basis Of'.collaboration .eerween governmental, .Induatrfal,academic,' 'foundablori;: and '.' other. laboratories' 'on. whtclr: scientific' developmentsdeperidt'": ,,- ", ' ' '" .1";

We should like ,tosubmit this resolution for the'officlalreecrd;. :Tb.ank'Y(111~· ' .

. . . Respectfully,'

'iffF'

vvv

term esIttsoenned-tn section 2 (d)' includes the former-and 'Illakes the-languageconsistent ,w:itht~enewly added provision or seottou 3{b) (3) which' assures-alicense to, ,the contractor in 'any "eve...nt.' and-represents -an important .coneidera-tiOI).,''-'''' "., ',' '.,'" , " '" , ,

'As you are awa're,-A;me;l.'ican')ndust~·yas .a whole has not-looked with- favoron compulscry-Hcenstng such as..is, .contemplated-under 'section '31 (b) -(5); Thispr-ovisi()n '~ould,be'rendered':somewll'3Jt ,mor~"pala.tablehy. the .Insertton .tn.ftem(a) thereof 'of a minimum time interval, following thedseuance: of, the patentsuch as 5 years, during which the patent owner could develop', the invention;to the point of practical application. This follows the exlsting. philosophyof the NASA:patentwaiYerreguI~tions(title 14, pt. 1245, subpt. I, Code ofFederal Regulations).

The, pro:visio~,s,o:f section i3Cb).(8):~orforfeiture of any rights where the con~tractor was found to have knowingly withheld, a prompt,alld,.fuH disclosureare indefinite and susceptible of misconstruction. , The .terms ,"proDlPt andfull" ,are subjective in the conte~t·,us~~ since ideas and, innovations ar.e -ln­taIlgilJle ,and not readily i4entified' as' to, time of conception. Buch time variesdepending upon,wliet:iler -the -oare ddea orthe practical 'embodiment or. theIdeais'referred to for .determlnatdon. Similarly, the' requirement 'for 'a,'full .descrip­ti'0Ii,Iiiak~s such requtrementr dependent.ron how far the idea. has be,en. carriedto' 'practical embodiment. It shouldtbe- noted .in this, regard .that: the term"dleclosure" has' been-defined- in section 2to cover .a complete-description.ritbeing, understood, .that; this-means. 'such descrtption' .to the .extentvavatlable so.that the-contractor- -does 'not have-togo out on hta. 'own to: complete. the' .descrip-!tion;. ~According~y,. it .is:urged that.tnerererence to', "prompt-and .full" be 'deletedfrom line 4 and from lines 1Z andl3.

As regards the' term "knowingly,',". this should' be,' clarified." to- cover: intentto, avoid compliance 'with-contract.~equirements.,In,ttie:perfOl':mance·.of,any,R.· &<D: contract, the ccntractor-unust. always make n:-iudgment.as to whetheran; invention is' reportable under the.contractand-when. he: does, so. in; good faithon-an. .informed .basts, "he' is' doingiaocrknowingly. .'Accordingly i" it is "urged, thatline:12 be'amended .to insertv and i4' bad.f'akh" after.vlenowingly".

;Section :·3Cb) {9}' would -be-unore properly rewritten: aa 'R'. separate ..sectioniii -the bilL since" it .would be unusual- to require- contract language-Interpreting­the; language Of the -aet; .It: is also' urged, that> the language be-clartfled toasserc.acposftlve.prohlbttlon against depriving. the owner. of <background: patentrights without compensation. The' taking of such rights' without compeneatdonis considered to be inequitable'and contrary to-baste legal: principles.

In section4 (a) (2), we again .direct your attention to the practlcalImposslbtl­it;\' to define or limit the application of the provision eapeclally-aa-Iti.concernsthe term "public welfare.v.i-It.would.be preferable to substitute for "welfare-orsafetyl,'.'the'phrase "safety or security and the inventions likely to result wouldbe useful directly in such fields."

Since the final paragraph of section 4(a) in lines18 to 22 inclusive on page7 of the' bill paraphrases section l' (a) (4) (ii:) of the Presidential memorandumand' statement of policy issued October 10, 1963, there appears to .be no reasonfor omitting the additiona~ .. provision of. that policy:. This . can readily beachieved by the insertion of the following in,Une:22 of the bill : .. , '

"Greater rights may also be acquired by the contractor after the- inventfon-hasbeen identified, where the invention when made in the course' of or under thecontract-Is-not a primary object 'of the contract; provided.the: acqnlsltdon.of.auchgreater vights is consistent with .the intent of this section 4(a)-and is a neces­sary Incentve to .callfcrtfr private risk capital and expense-to bring the inventionto the point of practical.appllcation."

In section4(b), lines 7 through 11 on' page S'of the bill, 'the head of the execn­ctve agency involved is given the Tight to take .tttle to any invention made eventhough 'the- invention does not come within the scope of whatever standards fortaking~titlehavebeen.set up in: section 4(a} upon a finding that. "the; publicintereet.would.suffer" if· the contractor got title. Such-a proviso is totally, with­out reason-andIs considered to be entirely improper and unfair. Dnder- suchconditions, a potential contractor-would .bave. absolutely .no. basis' fer. believingthat he would under any.elrcumstancea be. entitled to ownership of an inventionmade under a contract. Personalities and politics would.have full reign undersuch a Iegislatfve device.

The committee .recommends that lines '7 through ll.:on,page g.tu section 4(b}be deleted without substitution. This revision would also require-that the

reference) tosectron 4 (br i~ Jineleon:page 9-' uri~e'r' section 5(a) (1 ):sllou,ldtil~~~";isebe~fr~c,ke:Il-;,<:',,;<, ",',,:"':':" . '>;';":'.:" ,.""":,,.';" :'~; :.i"",:" .. """,:",;.'.! ::"..'. ;'

To insure:.'tha;i)mY:l::iatent,application,:· filed PY,ap,agency ,liead ~nay be' pr()pe.dY'identified,' it sh()ul(l!be'file~,ill th.e, na:hle' oftlle' iIrveIltor, oriILvento~s.' .':J:'h~~ 'TI¢~es­sitates the:, in~ertionofth,~:ph~ase",i'n.·':t:l1e' ili\me" or the ~.l1vent()r,.()l' inv~ntors"- ill'section 7 ,atliIle', 21, 'page-iS;' ll#e'r'-."in+~n£i.on'.'al1,d'in' s~cti'()11,8(u:,ra't line '~8,page ;14,a~ter"apVlicllti(ai;"':!''':_":,,;t,"":, __ ', ':'._ ':"'''':,',''','.'' ..' .."'. ,":',' ,: :',,' ,C

u

' .":

It'isfufth'er-recom:mended -mattoe -jast two sentences, jn",sec~ion,8(a), 'begfn­ning. in line 280n page 14 an~, all of :s~tion8(b) be 4e~,efel:riILtl1eh:',entiretY.It' has ever' beenthe phnos~Pl1Y',~f,Goy~rml1ent,since the 'r~P().rt.'arid-recommenM

dations .o~ the ,Attorney Gen'el'al"to::the',President'hy Att6J:ne:V"(}~~eral-,Tom,G.Clark·ill·'.1947 'that tli¢',.publle ':interest WOuld' .1Jest beserv;e1,by;'o~ning .Gov­ernlllent·owned dnventfons ~o: tl),e'generlll 'i>ll.l)li:c,a~d:#ul'tHc~n~ing:(rf',f.n~ch Inven­ti?n~ for' 'a' royalty-Is not only difficult. a~d', lik.elY,to':·pe'Ji?-e,quitable'b:ut, would'necessttate'detectthg' andpro~~et1tiligin~dn~ers·;"·.. ", ': .r:.• ;';':',",'" "', ......• ' .. :.. '

'I'o'the' end', that' this bill wOUldc~I1lPly'""it1?-·the·f.orego~ng"recon:nn¢;ndation~Of- ·the'Attorney General; section 8 (b) should 'be changed '-by the "entire: :lie1e,ti,onof Its present text In lines a to 11 un page .Ifi und sUbstitHting"E.v~rY:citizeilc.of­the; •. United .~t[ltes, sha)Ih'ave,-':a fre~, :rig"hf'to practiCe,the',iIlyenth:iIl'coY~red' byany:p~tellt. t(),: ~h:ich the:V.S. GQyernlllen~acq:uires'titl~:"";' ,'.,':'- ,'. " .:"The'~ell?-®rs"or the'AM4: Pil~enfc;on)jnittee:de-sir~·.{6.'cP!ll:llle,nd':ypurefforts

in pres~.n~i»g tne bill,. S:,W09;;aIlci',~pe,Cificauy epP:O,se, ,the;~()ng,',biil,. ,S::}8.9~.:Respectfulitsublllitteci.,'-" "', '~_"(') ') ,f ....,' ,_ '," "1::.',,, ',',':.} ",":" :",:': .~; ':';_'

, .. , , ... ' , ..... . '...·,~tLI4M'L,;'~bHER~;,S ecre-tariHPdtent -'-Oo.tnminee\,':',_" ' ,',' '" d'. ,,:,,,,, " ,~!.r-;"i'--'--"'-""" ,,',

CH'STATEMENT BY ANDREW J. BIE),ULLER, DIRECTOR, DEPARTMENT OF LEGl:SLATiON,

A:lfERICAN FEDERATION OF LABOR AND--CONGRESS OF INDUSTRIAL ORGANIZATIONS

'1-,?")

q).lir~~i~h,a~..all ~ig:h,ts ~Oi~11,<;h·~~V:~Ntio~,s,JJe:¥~igneqto ~l;l,e, G9:y,l?r~rneIft,a;Udr-nofleft to tlie private ownership of the contractor. Public 'control WillJt~sll:re:tree.and, :,elJu~J,.~vailllbility of ,.the ir;ve~tio~,s: to, ,.t\llielicfin }:lldustJ;:y :an,4;sclence;w:ilte,l,i~a'te;~nY,_copip~t:\t~v~a,dyapt#g~:.to' ,~h~,'q~¥tract,qrl,c.J;1(iS~~!'tqtp,e~'fqrm .the .re­~earch,\V.ork; wtu. ,av;old undue cO;ncenttlltion ,¢.~cqn()InI~.ppwerlU the handso~',af,e\Y·~lilrge.~prP9rah6n.s,fwgl tt~~(i;~q,hl,crea~~:~n~.Q.i~~r~~fY:'~v~tHl.qleresearchfacilities wtthin the United Btates to the advantage -q~,:m~,q()~~rn:p1~Jlt.a:~l(+,;:(?,:r

~~':,Alil??!'W~,,~,(VW~Y;t;,(aAq,__W~~l tA'!l!3 ,l;itre~h~~! oVr, \,AIA\?irfgl'u~; s:rs;~":lll, __of.,'4~~,~qmpeF,ltlv!'L~n.t~:!WrISf!:'j.:, "," ,,'; " i'i" 'j',. :', >'" <,.Y<"; ",,' ,:: :C:;''I ;vY.~,,~gr~ jW~thi,tl;t~s,:vi,e;'-Y",8,~q, we .urge ,t{J;is ~ub~RP:H~Lit~ all'! this" CO,:Q.g~sS;' to

take, the sam~,~llJig~~J;1;~d"yie:w~f,t~e,p:upl~y;in,tere$t,j.~jmtent PP~~cY." .• :. "" ': ; i;

:Jye ~e" 3" ,);ms,i:c ':~~cS)l1si~t~~cy,; in; et¥9:l't~,',p,f; .glant, ,~o;rpO~ati.o.n.S' in.' support; ,.of,Fgderll1,.· p,~:tep.t .1~gi~la~io~t:~~a~. wqHI,4; ,fn~'~e, ,it~ d@c;ult,; if.ll,o,t.- ~mposs~ble"fqr:a]f,eCl~:t;al :~we~y;y. (U;>: ~st~!Jl~~h: lfe~er~.~cnY;nel's~iPc P:f f~,de:rally ,g'ubl;>i9-,ize.q illyentiqp~.These corporations' are asking fOJ;".~iP17i:YHe:gC?":1V]lich,lll:Os,~,;ji().,.ilp~.grant-totAei;r:OWIl.; ~WP1~\Y;~s.'. ", IA(liy:j41I~1 .. ~.n:v~At?,rs" :em'p~9Y:~,~ .by, auch.. cor:p,(}1',ati.ons.do; .notacq11~:r~! I?a,t~¥t.rig;hts.Jr,~h,~~F[ Jr;ve;~qRq~,;,: ~ ~,~ pa,~e;¥~ ,1'ig~~~(pass.to.the e:Il).plqy~ngeorpo;rIit1(;m,.''''-',:j'':,:i, . . >ii: .. ;,,,': ~:;">:i "'; ;;' ,co ."-',;H;: ,,; .".,.{--::< ";' ':"".wedo not ()r~ng.to,this,s1.1QcoI1l~ittl:le, ,Q.etaiJe,d·,exp,ert:i>se, ill, the cOlllPl,ex:field,of,

patent Jiiw aIu:f regUlatio~., :.~ut,:W,e; ,~re:q6:BYfi;t'ced': ,tl:lli~ ;ai;iy '(~i1' ,fln,d: r;e3.,S,Onablevigw'.·"of,~ th~ publ.lc i :int~~~st. ,will .su,ggfi~k,tl,18,;~[ ,al,l.,p~~gts. .developed: ,by, ,priya-tebusineS:S"c-\yi1;h :Fffi.er,~,l JU?-4s.;sh~llld ;1?€:, t~-p1J~!1: o::y~ip.,tq the publfe d~~:rl~in~".;"

With this general principle in mind, we endorse S. 189:9,;sp,onsored,ib;v;~enatorLong of..Lol,li~i~n,a. i,-Sell~tor Long's bill would ncccmplfshthe objective we seekin r,e<l~i-M'.p'at~,~t-,:Iloj~~j;;i:O,d;o/eurge this subcommittee to approve S. 1899.

Mr. Chairman, I appreciate this .opportuntty to present the views of theAFL-OIO.

;.Thankyom ·":'!,'f'~.~,(

U.S:,'S~N~TE.Jnne·7.1965.

....':.~~:r.i

(From the Congressional Rec.ord, Junei3,',19'65l/ H;,'/ ·}.!i ';., ,,:>.I:-::,,;,,'(i.! §.".[,.,,; '" .',!.l::,.."!',": 'fC,-,:;",,"··'-;,·,;.i

;',·,::'i·i .: ·; 'j' :},.~~O()D" ~flJ~r: );~I~!-lffi}\ I,iEp~:,~!·YSfJT,°tiP~..}n(;?E;:u)",,'

j i Mr:-i BAYj'r'.' Mr.' ,Ptisident, rec'enti§i,On the;;:l19Qr:'of ;-p'Hi' S,eit~t~/ ~efereh~e";,,;a~:m\ldg to th(l. de,vE}l~pmento~ 3. blp?c!';test.-;1dt for ~lie~S-JIi$'to~ur~a'---k~bir'iL,;bYsOmeOf~ us','Wll'o"ate' le,ss"atti,c:!lllat~ a~tf'~~o\Vled..g'¢abl~·', ip, t'1l:,e,lleld' of medical' sCi~~c~as',PKU:..'.LwHich''lias 'been marketed'JbY' Ames Co~,,: '3..' 'subsi-cUaryof'Mn~s :;Lab'o\'~Vt()ries, ,Iuc., a, >yell-kn;o\vn, 80xear~01q,:~m.4l:l~F,t~ lnd. I , .phar~a,ceutica~", m~ri"l'Jtac:"turer.i '. TliI'iS -blood 'test, pro~i~es,!,to"s~ve th6u,san,ds, ~f :,infants .,fr0Ix1·ll1e~tal,'l;e­t"arc1,a~io#' "~~d, JV:heh. broad~Y 'acc~'pt~kf, ,wnY,be':a:,reriiarIral)~e ;advauGe;Xn' 1ll~diCi~ e.~:,:r.-sh6u~~have pr~f~c'~d: 'IllY reina~l~s;',:When'T,:r;ef;Eirredto' tp-I)se'o~ llf;'who:·a.re 1~s8

khowle'dgeaore'in thefielo.-'of ni~d'lc~l'sci~nce"b:v'excl'u~frik"t4~pr,es€lnt'Presidiilg'0:ffiGer, th;e, Seuatpr-froin,,~e:w, Yorli '(~,fr'.'K~~ne,drr-b~cause·,'Ili:now?f.his longihterest in tb;'~, fie~dofh1-entalretardation·,a,ndin.erital, ~eilrtli:;,',' ',' ' '', ' .' .

'This< test'in,ethoU')was';conceiv'ea:o'y·:Di·. "Robert· 'Guthrie,' 'of' Buffalo;;'N;Y;, .;,Iifperform~ng th~; ~es.t a d.rop,o~ the, illfaI)t'~ bl~Od: is us~d, to ,det~rmipe if; the',cnilCl;is \afflicted' With' PKUj' if"1indetec'ted; and,iuntre'ated, 'brain: damage'occurs' With_.." ','...."", .','" ,,' .''''':; ',r! .. .'ii".""·:;;'-·....... ,. 1.);1 n :1 ," ..... ,c .,', ,t """"' ..."., " .- .... .

:, ;:;

Hon;,aOHN"L.'McOLELLAN,:,:, !' .... "',0Dhair:m'OIn,:,Suboomrt14ttee on I!-atent8; ([1radmar1cs;,a'tJ.Q;;Oopyright8;; oommsuee.

on the JUdiciary,':U.s.--Senate;<Washington;.D-.Q.~," ,~,.., ."'" '," .."-'DEAR,'JoiI~-:,';I"Un(1er~farid' 'thab 'at jrour' recent:hel:l,r~rigs!on: patent ~ractices'a

statement'waJS' 'Introduced -tnto tneeeeoru ,'of'the' SUbcommittee: which' de~lt ,tyiththe ,pricing. pr~ctices of the Ames, Co.,.a::subsidia'i7 of Miles ~Laboratori~s;'Il1c.;'QfElkhilrt;.Ind', ",In, tntsetatenrenttne.enrea ;Cci;~:had.been. criticized' for·the 'pricecnargedtfor: a:test;kitde:veloped·.tO,'~estfor ;phenylketonnriar·'. .,' .

f, I found that there: were-several' ·errors'<,contaiIioo.'-in:tha;t·statement when 'it' was'originality made on the floor 'on!June: 3/ ;1965',' and 'I:;IIui.de;insiateIiient 'on-the floorof,'th~'Senate' which' attempted,toset-'the 'record: stratgtitas. far -as A,mes"pricin'gwas concerned. '--!:!':'J<"'" . '1";oi ,,;;,c" .·;'Iiask,tiiat.mY statement;' a cOJ!:Y;,ofi,which:ts·-attached;:be included-Inthe' record

of:y-o-u'i'lsubt:lOWm:ittoo"atia'ri'appropri'ate'place;ii:':' ;'~ ",--i'. " ,'I': ..,! :;" '

liWithcb'est-regards.": "),;·,f,,,i, .1;:,;: ,,'!,i J'f\

'i;'.' '~~~y~:elY,':' ; ;~:;r:;\\j',;;,.!~ ~'~".l

'subsequent; :metital: 'retardatdon ~ ':,:however,' earlytdetectlon andamedtcallyr super­vtsed dietar;L.treatment prev~nt, severe mental uetardatton in Dlos~,':phenylke~

ltorm"ric'iilfantE{.:r"'SllchJ\te'st procedureS' holdiforth, a~;promis~"oInormal.nhappylives~,., .. ".i!" ..;"";;")i'l':", """.:"j-,-"!i" ,,".' 'i,'i;));:) ,. :.,~~).,

; The,'~Dles ".:jo.:iund'eitook'the !developme.nt: df;tlie! 'Guthrte- test;'m~thod"and. has.iliark.eted"f(technidtnYrei:i~ea:produ:et::l(:>Jij,; ",''-,1 ",')L[[o. ;'~""i'::; lit: ) /~ ,,';1",'; :"U'.';!',' The'discussidn Jori. j the\ 'genatenoor 'was basedomcertatnr data;':supplied' oy,thePublic 'H~althi,'Ser'vice;;and'the.''Ohi~dren's :,' Bureau' '(')f.itl1e::"J}ieb~.:rtnient'-ofHealth,Education, and Welfare., There', were' 'centatn '-inaccUl'acies';ln,this'idata.:whichshduldbe'corrected.:foi',th€d·e-cotdi. ,;,; "j . -":\j!j'iii ' ";iii~ f.:'·:T.o,';set 'forth' the'::ge'ile~~l'position;of-!Ai:iies/ ,r: would cUke; 'at: thfs.polnt .to.quotetrotnauetter to,the sharehbld.ersl signedihy'WaJter: A:.i 'Gompton,"U.Dii .president'of'Miles'Lab'6ratorieslnc~1: fHI;;;; 'ii; I ;';',"'- :i;'J "'''(~ ,:"t ;,' ".'"" HI,' j"

'lOUr. Aines ce();, :lla.~''he~n: "inv,olved-In;P,KH~,research: ,for:n-earlyJ.10i'years/ 'In1~58'itpi0rl~erediit;, d'e'velopirig~: and'' briilging'.to·' market·l.a i urine; test-to-detectthis condition, ','thid>has: 'm'iliterveniilg'yearslvery'materiaHy'iricreased tkriowledgeand attention .to this preventable mental disease. fllroughout. the .world.;;':"Whilenot an importanl,;prodl1~t"'iD.rteti:ns·of· 'sales 'vdlume; :-tbls"test/has':pe~orni~ a,slghificaJ?t' 'role 'in:TIle'di~in'e ~i~ce; ',if'used, routinely,. it could' lead/to' thetsubstan­tial 'iinprovem:entiperha'p's;even:'VirtuaH~Hmination,"of'PK;Uas-one 01:' the~ causes'6f:ineutal'retai'dati()Ji;,jr!.~i".;j.! ",:-!ii';" :i,';':'~'tli:-: 'ldT. -';'i!I,;~"" "iii':iiv"!i '::;;,'!,.

- "Tt 'was' because' 'of .A!mes~ 'reputation 'in -ttira :fi'eldi-that:a",Dv:Rob'ert: Guthriebrought hls test c~nc~pt to lIS. . ~hi_8te,st Is-done on blood ,and,:'althoUgh:),~tlchmorfOldifficult and'eXpensi'v~to'p-erforIll,:if may have' the advanta.ge dVdete'cting'?KU:.a' fe~ ','dllyS':eariier" ,th{lni,'9an;-' t!'!uriile,:te'~t: .. ,:Anies: '[rgre'ed;to"mllriufactu~earid 'market a-,test.'base'd on .Ithe 'G:u~hrre__ conceptand ;begarrt"o. dO'. 'stFFiif ,the'fan'of19,63-, , This proved-to' "beI qutte ian;'uIHlertaitilig,ibectiuse' 'a' great"'deal'Of.' researchii.me :w~s spent.'in~ refiniilgl,'the'·~est,·toi ,meet "ess:enHal'.;sta~da:fds;of'iquality-,'anduni~orniity." ~'Ten: stib.s'tanti~l;'techritoat .atteratrons. ,an'd'· 'tmproeements;were; .re­quiredberore-tn our :j-u'dgmerit :tlie test" coinu-be' !said ,to' ,be:'sufficlently; .reltablefor general use. ,Moreover, a new production facility 'h'as:been built:and:eqirlppedto 'h:ia:iitifa~ture -the ,~est· properlY.'·becau:serbf<speein}~'reqli~renientst:¥herentiii~'the:produ~t;i, ,After: this',' ':i~' iJ:lteI!~~ive 'educatronat 'campllign[ ~as'[necessary,to'get-thenew prbdu-ct 'brought to 'flie attention :of .heatthaeutnorttles- and' mto ·cUnicalhuse';tlliswasacostlyundertaking;." . ,'.'~:'Ji'!1'; "W"""i , 'iLl".,.'

"ames has ueverhali 'a'ily :moilopoly,,:position:in:-,.them:arket,;;.tll~re'are 'several"competing- 'products that: we. know' 'of,';; .Nor' htts':Ames"even ;apprbac~ed-recovervof its' investment .. ill' making' this' 'product :-avaiIable.- f ';The' -new produer.waa'orfk­iJ?-allY scaled from .our estimates to be .sold at ",~ :price;'resultin'g'iii142,.cents"per~est.After, some.g months' tOf'manufacturing ,and lllllrketing :experience",lftbis'cwaEr're­duced to the, present level !of:approximately, '21"'cehts;,,' ::~At,'this Price: if It'were' Po-S~stble' for every -chlld boru'dn' uhe; United"State's' each. &ea-r:,td'bet,~sted. this' wouldamount to about $850,000. '. Yet it has been estimated. that 'early: detection'.andtheavotdance-of institutional 'care-would save the.taxpay'ers"$20millii:miwhen 'spreadover .theIifetlmeof .the BKiU vlctlms'bormeachryeai- ~ .,:; ThisiS'quite;apartfrom:thehuman'misery',Which:wo-uld·beprevented';' ",j :IJ". ,

"In-summary 'we'beneve that yolir)company'has: acted'· in the'publi<:( iil'terest"byd~veloping;,:manufacturing;"and-,;.brin'ging:intoi'use ,r.eWtble :tests'produced! ::uhderthe' Jiigh: :standatds"iOf i quaLity,' required,lfor: ,such rproducts.' :'Actually;', rthis, test'based::ontheGuthrie,'conceptjwas 'made iavailable largely,:as: a'publi'C:service,without expectation 'of,significant.'pro'fit;as'part' of, ouri,responsibility as'll. ileader\'iIi: this" field, of: 'medicine: .' ,We" believe', it, ,has: made 'a; 'worthwhile :ccmtributioIi.Much more could be said about the inaccurate inferences which ,have' been 'drawilin -the press 'in, thi's:matter butrwe; believe1:heabove'represent: the :responsible'andsig.nifica-iltfacts-/r,· i ,:,' . . "

"', ;Now:ilebmelsetdorth>folT the: record, ,the' ,points ,in :conflict'aild:in'more ;"detail,explain,:theposition,6f'Ames'." ." . '!'. :i:~', ' :,--,,: . "I'"

It has:been, impliedithat;' by: reason' ,Ofi !the:factrthat ;Dr~ :Guthrie' filed' la:- patentapplication, covering this test; method ,and thereafter entered .int6,a' :license ,agree­ment 'with:,Am'es, this ·action 'l'esulted'ln.· delaying' idlsclosilre:·'of .. tliei .Guthriec:testmethod; This .-is",clearly;erroneous.UrD!'.' G.Uthrie)uad, discussed,his:testimethod,in;.: public: :as! early;, as· :JtIly·196.o. at la,' scientific: ~meetJ.:ngi,in London: :'and!i f·lirth'erpublication:in U.-S. medical :journals'followe:d.ili 1961;--···'!J;hus Dr.' Guthriets.jnven~tiOD .was:not, c.oncealed',and, wasi.p,ublic knoWledge ialmosb.2 ;years prior:. to /the,April ;1962'Ji,~ing ·.of,a'~patent: applicaUOll..by ;Drc ,Guthrie,'~:and, long'· prior .' tb',the

June·.1f162, agreementwlth Ames. .Oo. for.thedevelQPmeIlt:and:marketing,of,·:,tll,~bloQd,test.,·' :.-.,.:,,_,. ..<: .:_"". "'c,',;:>",;) . ;;' "'.' ',;','

Jt bas .been 'impliedtJ;1at tl;teAme,s Co~,·or"Dr:. Guthri~:,:sou,ghJ.'Jo-establfshrights in the Guthrie test method contrary to the Government's rights,:,-,,;,'..Ifthis were the case.T wouldbe.highly, alarmed. Howeverv-thefacte R.re rc. the

contrary. At all. times Ames Co. and Dr. Q-1J:tllr:ieand;his ~liyat,t'!:sponsorsreqpg­nized. that any. agreement was subject to;'the.assertfcn. of controlllngGovernmentrights. The June 1962,:,agr.eement betweenAmes, Co. and, Or." Guthrte.. was .ex-pressly subject to the prior.rights of theGoYernme~t,. " '.' ". :; . '.. ,

I have had an opportunity to read verbatimthe"contr~ctuaLagreeIlleJlts. Onecla use specifically, requires that Govermnent ~!lws_.are controlling and recognised.

Moreover; the suggestionthatAmes andDr; Guthrlewere acting Independentlyof the Government's interest ignores the plain fact ,thai:--:-,..as: .recogntsed.Jn. tll-eprovision, that .the agreement .wassubjectto the .assertton :ofqoYerll1llent rights­the Burgeon General .. had the nower.torevjew.and _approve any :Hc,eIls,e, agreementand. to .dmpose. such: additiqna~co:t;l~,itiona .as .he.belteved 'necessaXY, ,~,qr; tIl€!, publicInterest..'<;>'.'·'." ,,:,",)""'., ;;,,::;,.;:,,>,:':::,: '__ .,'.,:'.: ..": c.: ,

;tAt,thisp:ointJ~41\_,Y01,lng pf 94io took thechair.as ,flrl?,~~,l,!ing,Ofiicgr.),." ... .',,;Mr.:: BAXH., ;M-r:" __.Presldent; .,yeste,rday, .~ye:ha(j.Jl,. ril:tlg~r",l~n,g'thyan,'C!,.Jjl?lt.

enlightening debate on thevartous.aspects-of our pat.~.;Ilt;)a~v<f:'!sPe<:ia.l).yJn:thf!field of medicine and health. The Surgeon: General has th~.:P9:~~r:;9f;reyj.ev.~,al:ld

approval -and 'has-used:it; extenstve,ly. Heuaed.It to ,q.~llY tl;l.e, .app,lic~tioll: in: this,particu1,a,rcRse.,::,-.:,: ". ... : .. ,"';-:';i:,'>;" -.:';',..-' ,Although ,tll~ t.e.rnl~ or ,conditi0J1 E> ' for, a .licell~e,:wer,e,: ri.ev:e:r .res'olyed;, since ;nolicense was:granted".l;td.vis~rsto. the..:SurgeQll;Gen,e:ralha.d':~Ildic~ted,t~t if, anyIicense .agreement were ;JlpPl:'Qved, .. it: .would .be 1iroited to. ~t 'Illp-xJIllumdurauono( 2,years. end would:,embocly·othei~:specific1imi,t:ltioll,s,o.lCcpnditiollS," ::.j::',As, matters: de,veI9l~~.dj.·.in;]\I~~y;"of:19~: the J?~:rgl?on,~q~tle,r'ai'7':"ftg~}n,wi,t,hin•.J;1is.

authcrtty-e-dlsallowed .the :granti;Ilg;;~t';,allY:, fo.r.~ ,:o~,;e::q~~us~y:e .. Ileense. JIl. short,Ames-haa. neverdiad .an :e:xclu,sivg;;li;c~nse, aJ?o.':Or.,,,'G~thl:'!!,!;.hfls,:·assigned;.· hispatent-appfieatlon to.theGovernment, ',L::.:': .- 'i" .i: ':.' , -.', '," .<,' ;', '-"::;'.',. EYelJ.' .thougtiArueerecetveq, no, ·.ex.clus.iYe;right~,~or,;,eyen a':limited; Pe17i9CI,' ithas.conttnued.to.serve.fhe, P1l:PUG)Il,ter~st,l;ly,rgakJng'l:\ya,g,abJe'",a~,fullyd,E:Y~l()pedblocd.f.est-ldt. and ,has)'lJy,.ext.ensiYl;l,·;ipforIIlaHonal. eff9rts;cH)l'e.~ted:,.t9;"t:p.e 'pro-fessions emphasized the value of PKU testing.;: ,~: ,';.i ,.' :::.; '.: '. ": ;-;:,-'

-In.thts, connectfon.dt.has. .also.beensuggested.thaf the blood, test l;:it originallymade.by'.D,r;. Guthrie-had.ialready: been developed .and: tried,aIld.that: furtherdevelopment twas unnecessary.. ,..This-.isnot: true.' ,'l;'.hat,product was at. best unexperimentalproduetfor-fleld.trtal use only."

The;product-'.ll;larketedbyAmes,Oo.,is not the- same.produotas produced for. thefield trial.: 'Ames: Co, .haaspent $93',0.00 in researcb and.devetonment .on the .prod­uct, and: a .nurnber-of significant changes were. required-to be: made in -order toproduce,a marketable product~·:. '. ,: ,:i::"',;

While certainly..aicontrtbution, it, must .be. -recogntsed-that ,the test- prcduetthat. was being produced .by Dr.' Guthrie .. ror .fielri trtaj.was "being-made underrelatively rudimentary conditions in a rented' houseand.wtth only limited facili­tieaavailable.tohirn. DraGuthrte contacted the Ames Oo.cuecause he recognizedthat .. the-product hadto.be.developed and, brought.out under': the', dtrectton.cr amodern ,pharmacellticalcomp.any,that.had. experience: and' broadskills.and. facili­ties available to it•.. since he knew; that Ames Co. had- experience' in just .that.Idndof testing; Also', it was.demonstratedat-thetinie that there were' defects dn thetest.cand that fur~her development,andrefinementof the product-was essential.before use by the public in general.

Products-to aid in' the.diagnosis of dtsease require as high an order of -assur­ance as possible that the test results will be accurate. The danger Jies;"studyshows; between false, positives, on ,the' one: hand· and .false· negatives. on the otherhand. A false positive would cause undue apprehension;' although the babywoulclalways:be·rechecked.and;the fact that it was a 'false positive'would,be confirmedwith·noharmdone. But'.afalse,negati:V~indicatingthat' the' disease ·was'notpresent~ouldbe tragic.-, This is particularly. true :in, the caRe,of tests ·forPKUsince, if undetected and untreated, the result may and probably,wiU,beirremedi­able: brain .damage.· This' is 'sosirice 'corrective· clinical :treatment· 'must be' takenas soon· after ·birth. as.:possi'ble'; if. the'desired.results. are' t6 ·beobtained:.

A.private compariy-cannot'.distribute a: diagnostic' ·test-·.pr?duct· f()r' public:use'until all known defects. are renlOved and therels an',assurance of r~productibility

:of're'slil~s 'aD:d'accur~cy, o~,;peF~oFhuiric~;:; ':rhis';eare"illust be "exercised .not onlyfbr,l;easons:of'iri~egritY:'"l>tlt; ,also -to fulfiUi-adllerence' t(} ,Government re~lationsand to minimize' e~,posur,e tocivi~ ,liabni~ie:s;, Ames: ,Go.,',d,evoted ,eonslderableresources and scientific technolOgy,' ill' order, to' de'V~lop a',mavketable ,prOdUct:,

Let me specify the 'additional, steps-taken by, ',Am,es,-to ,iDlprove the- product: tomake it 'marketable,,:to, lllak~ ita'product of -integrity andr.reliabtltty; and-toshow-that-a great deal of~ffortwas reqllired fromthe -ttme-of final testing-to thetlme Of eelltngIt overthe counter to the public In general.

E'irst:' 'I'hemicro-organtsm B.8Ubti,li8 ATOC 6051'was'changedto B.8ubt.u,I.'$A'l',CC E)633:for better stan{lardizEition: 'l"his was necessary' because ATCG 6633was readily available' from reputable commercial' sources while, ATCC 6051was not.. There were available exacting control standards forATCC 6633 whichwerenot defined for the ATCC 6051 strain of the B.8Ubtilis used.In.the.ortginalk~; , ' ' , , , ,

Second. The, heat dried sp.ore'suspellsion in the orlgtnal-kft waschanged to: alilluid auapensfon' in: a"sealed' ampule;' It was, necessary to make, this: change' tosecure standardization, and, to have' a reliable' ll1ealls of securing, an exact rangeof viable spores.' 'This could not be accomplished' by the' or-lgmal-method .or heatdrying.,'"',, "'"",,, ",,',", '" ", ,,', " ' '-',,0-' ,

'-f1le' possi~i1i~:r'" p~ cont~miJJ.atio'n strongly. ·existed. in" the- 'original'.method asspore vials were '. open to the' 'atmosphere during the-requtredvdrylng procedure.The sealed ampule provided maximum accuracy as:tcfspore:addition'tdthe;testfuel;fium~i-'__ ',',';"" ""'". ,,' '. ',", .: ..',' ,',.,,", .-Tliitd. Since heat drying was'eliminate{l;"t~etotal:s'pore,co,untperampulewasde~rease{l:,,~~iS r~finemell~ :was based" upon','co:nsidera;bre~'Anies' resell.:r~h eff'orttil.arrive',a,t·.a '. deflnite 'spore; count ,per' ampule', whtch.' w-0llid'result 'in'.- OPtillluIll'readabi,l1ty'of the test'. ,,' ','," ',,: . ',': .:'Fo~rth. 'r:i'heg-Iucose'~ontent ''tva,s,{lecreased from 1,'to O~5 :percent: ,The 'reason

for th~S' cllang~-'--3)though-it: appeara to be-relatively in,si~ific,ant'-"--'-neverthel~sswas-to iinprj)ve the' stability-';'of t}ie 'end product in'terms. of assuring ,max,iInumlifespall,frollldate of manuractureto d&:te'ofpse. . '. ',":.'.... '.,' ... "

-'Fiftll-, ,Ferric' chloride 'w-as 'eliminated to prevent turbidity in the final'di$­solvedmediulll,-. This--iirlproyenleJJ.t,again resulted in, in(~reased readability or thetest;mediilm;animporfant~lttributeofsu·chtest. .'. ' .'. '.' '

Sixth;' :,~odium': sulfite aaused-fn ,the original .ldt -wasvchanged to sodiumsulfate in the- refinement 'process to be in keeping with the-growth medium de­.scrtbed in the Demain study~'MinimalMedia for Quantitative' 'studies w-ith'l!ac­oil?U8 Subtili8;",' an-established: ,:reference' on .the- subject' .to. make it uniform toother tests which are conducted .throughout -theeountry-on other pr()ducts.

Seventh. ,The dehY,~ratl::d'-n'u;~di1imprqduced atAmes'direction by m~,)nd~­pendent source was adeflntteImprovement over the originalprocess.Tlr~9rig­

Inal method utilized a dry blend of ingredients which was found unsatisfactoryin that total drying was difficult to obtain and the method called for numer~:)Us

stages of mixing and dispensing~.-,This, in turn, requireda constant checking ofeach mixtureasitwas'completed~,,'Inchanging to the dehydrated medium,Ameswas able to achieve definit~ uniformity, of component ingredients, ,minimize con­tamination exposure,increase stability, and meet commercial producti(}llrequire­tnents. Thisrefin;ement also, made the test easier to perform and lessened thepossfbfltty of errol' by the user:' .. ... , ,_' ....

Eighth;,Anies'· refinement process eliminated the separate. vial of dried b-Z­thlenylalantn used in the original kit.. Am~s Incorporated the b-2-thienylalanindirectly into the' dehydrated medium. A decrease incoIicentration of B-2­thlanaylalanln was found to be necessary to secure an optimum medium, Thesechanges were pointed toward the good manufacturlngrobjecttve of securingmaximum uniformtty of essential Ingredients by combining three of. the originalcomponents into oneuetivurateu powder and thereafter into one container asopposed to three separate -contalners originally 'utilized In the kit. It makesthe' kit easier to usc-and more reliable.

Ninth. ·.An'additional improvement was the .utllization of five plastic trays andcovers in each of the Ames kits as opposed to.but one: plastic ,tray and cover' inevery fifth original kit... Ames found it necessary to 'provide, a-one-time-use tray.The single tray and cover.per every flftf kit as originally devised required usingthe. single tray for repeated testing, thus Increestng-contanduatlou- exposure.Evidence or.auen. contamination had been.obsenvedtn the, single,traY',~eth,od'.;'

]1Jmp~1iditures "~-j.l;'~ldfen!8, ;~,~t:~q1f: grahi~-i~·M(Z"::t~~~::'(.tHl~'.f~, ~t. ;t" S,ocial, :, SectfTit,!!#-pt), top Gflrt1l:r:ie.,JfffJJ, 1{1:'oj~c~; .jiscg.r,Ve:wrs1962-,64-

. ~peeial projecfgraJit -totJniversit;Y'of'BUffa'i({:(ri'~;'Guthfi~r: ., ,Stall' ~ ~_~__~_C_, _~c_'~ ~ ~~c~~__ $120,132Supporting' services (travel; laboratorY';supp'V~~,".epij:'(~,i;ni.o.lt?~ic '.: :; ....,.",.:

surv,eillance" .post,age!, :et~,) -:-":,'"'7"--"" "","~-'7":':'::"':'~:,"""::"''''~~'"':_':'''''''"'"';_:'': " 109".864

~~~:n~~~·,'·iq~M~l~~6~;.~:~,~~.'~,=,=·~:i==;,~;=;'=',~X~'~i~~~~,::~:i.-==.~~=·':;,==~,~:;~ ' ":, ;i~~;:;~~~-,--,

I.' ,Tenth. .In "addition to;rthe,'r~fj.nem~nt~,'E.\et.;~Of,~~:Jlbp:ye,_,C!0:q.sil'ier~ble.tI~w.,ap.1i

.effort 'were expended-In cl~vel.Qpingi~l1U~.litYlCm:itrql:pm~edllre,s,and. ,;'3P~~:figa,ti()~sto; .Insure-othaf !thei',productt!la.s: .manujactured in ,ind~V:~d.l,1l;ll'ib~t~~~,s; ,~np., fr"(jmbatch: to: batch; would, .be aecurate. and, e~e<;tive~:t~,,t~stipg l P!l;1?ie,s~.,., A: fe:w;, O;~, ,S:\lCAspecifications and·.,p);'qcecluri~~:ar~;r~;w; m~t~ri~l~,:te~~:i-P-g,,;:m:oi~tUl:~... c()IltrQ~; of.test" mediumaddentiby c~n;i?:I,'ol'ipr.ocepuresi::~cJ;pbi}?l()gic~1,as;'3,~Y .PJ.l :.B.;;sU:bc~1~~s-spores; .procedures-fon. ;stabUity, .testlng ;qf .batch mei;f::1ar.nple~i3:t- 6-,: +2:!,)?'~~!-)l:r;t-dSO-month intervals ,and finlshed. product.testing.procedure. l c,,'" ,i,_: 'I i, ,)._ "'.; ';'

Mr. .President.rthe development-and markettng, o,~.q;:l?,J;(),(1J];ct,()f;:t9-e~,mlt~r~' o'f;Guthrie' .product-de .an intricate.process. We: are :pe~Hn.g,with,t't1~,Hv:.~E?qf.youngfbabtes; just bQm:."a11.dJt;::i~;lJIJ;ll1O,J:,ta:p.~;tlJ,at"we,g9ltQth~,~thi~~.lP~Y~i~o -l?rl?,~~~t tlj¢,~rhealth and safety.v.r,', .,j,,-:;:,',,.::,. ;"""'.'" ..;:, :,;;/; <,',,;:,,', "'..'," ,;',<,[';' ,j., ':,:

..All. of .thiawork onrthe.dnhtbitdon a,ssay inyplv~d;s:Ub$tan.-t~~I ..use -,pf',;researcp.personnel and considerable product development, including experimental maJ.l.ll~

facturing..-: ,The .Amcs. :Ql1J;l,l,ity,gontrq-l;.m.ethq-ps. ,4,e,velopIJ;I..enKgro'llp..' ~o.~·ke,d~out.essav .procedures. fQr,·phe-nylalanin,· ;13,-2 :th~~p.yl~l~p:l:iI,li·; and, IH-~d~lllDi<;qmpope;n.t~,;this' has been :expressly .commented, .upon '~~n ,i't,e!ll,10,.above. ;,mhe ~ ;Wicroqip~ogysection, and. .the. .bi.Qstatisticllli,s~cti'OIk: P.i., .~es,; ,ql;1111ity. ,Co;ritr()l A..eveloped-unevaluation method for kit 'performance which resulted in a' eonelstent, :Pl:."()~

.cedure.. ,f(}r:.dete;r:lDiplltiop, pf '·.llccep.t~p:i1ity P:f; tll~ ,_~pishe4"ki~ ••...__~hi$; 't~cl;1no~

.1QgicalaccQlUpli~hWeIl,t .was,.once,:a,gl;l;ln, .jn. ,~(l.<Ft;ipn. :to .ttie other:.qualjty·.controlp,rocedur~s:setforth,:j.~itemlO:abo,v,e.:, ", ,.,'.):, '.' '" '", ";1" ',,,,, ... ,,,.',...,',

The above summary refutes a charge that no further development w~,!?~,P.~c,~,~­

sary· .to, .market .'tP-e,P.rp.d.uc:t; '. ,c.omp1e;rc;t~ll."Y:'i'l ;T,hi~· ,.dey,l?lopm~t:Lt ,effgr.t .;r:eq"\ljredadditiori!lleffQrt,t[ly.estmtint,,~d e4Pe~se."" ",' "..,', ;! "' •• ' ... ' ,.'~ ."",'~ .:,:,. ,('i-

,:" ·Mr.,:Pr~s-id-=nt,: there-has, ;Q€\~n.a constderable. Rm.o:u;nt'\9~!;dts,clJ~~ion;..In. f;OD1~mittee and on the floor of the Senate during the past .~e~er.~ 'mo.~~bsUl.p9::qt

.someunfortunate. ,pra~t~c:~s' Indulgad .in.. j:)y; certain, ,d;r)lg· .compantes. ',,:~ ! dojnotcondone .them. .. ,.,I.,<lO,.p.ot; .condone .the.chargtng .of e;X:9r.QitR1;lt. pric.~s.;,., Allles;C9.nas.. been .accnsed 'pf. :.,~~~Xgipg\lll, .exortntaut ·.p;ri~~ _Jor: ". the, product, .that,itdeveloped from the Guthrie test i .method ;and At; ;'t1.a/3-': been. s.ta,tep.,::, tQ.~t: suchproduct could, .be,pJ:(lllJJ,c~d·:for. $6" including, ajl., costs, ,fp~''i ,3" 'kit,.c,l:l.I!:4tip,ing··500tests..;,A;.t" the, $6:,:p.gp..17e,:, thecost, .per, ;tes1;. would.. b:e,,:t.i2. gents pe~ite_st..- Dr.Guthrie had been working unde.r:;,F,e(j.epal:';gr~t;nts,tPf .13-~.ve;ral..yea,rS'ig~ring;thedevelopment or :his blood-test- met.hod.. ,:IIe, had,rece~ved!;Public .Healtll' .Servtce.suppcrt .ofnio,re··thllll ,$2.~9,QQP:~ an¢l ;:~ad' 'rt;!c,eiv~.d" adp.it~onal,·;outside· ,priyat.esupp()rt.ofabout$lJ)O;()()O'(i:.,':,' __",:, .j',,', \/;" .,"':':'." ...' ;;

Ini .1~62 the Chlldren'sBureau, made. a,·;gra·:p.t ... ,for: :Elr~.,Guthrie'; to ,carry. .outa broa,~:,sc~le.,progrA-m·,or;:ijeld.;tril;l.l"ofr:,i:J,l.is. plQod.:;j,:est .method. During .thtsp,!qjec1;.. $570,2()7. was -apent by the, .Oh;UdreJ?,ls,.,J3;nre3;"q·, ito;:test" ;404,5~·.babteaa~;t'Qsf3''the.,co,ullt,ry:.,: A;-'tWel!-k;doWn ,Of ,;t;b,e, !b,u(1get: t9::J,"'!jtb,is project.E.\hQ'Ws;:thefol~QW:inK:n "i,"; . 'J:'11'

Tot8J~~~-:-: __._,"_ ~-:, -:::-,:': ..,-.~~;:,:;~,....., ~ '"'~";<;~ ~~~~.,., "',"'~T ."""'--::'" ,...,..,~-:-:_.,.~,_-:~:: /294,9.0.7post ,of PKU ,fi~ld t~s~~lig..,by' S~ 'Fjtfites),~o.r~~la)~rant f,?-n,dj3~llqer ;:"" '

',~ title ,y;, pt~: h Fjo..cia~' }3,e~u;r~,tY' t~Ar)~~;'~'~;~'-:~7;~'~:""7!;[;-'~'~-\·';'~:-~~~~-:-:'''' , 27~, ,3,0.0

TotaL----c--~--T-----"C~---------T_-_--TT --F_- T_T,T-',':~70,'~07 '.'.:',This,.table.' shows the! ,errors 'in,the:;sta-tistics..of. ,the·\Ghildren'siBureau: as,t,owhat~-thepro.ducticQ,st;.,-to,make.' -l:,cR:ll particular:;attentiim.'to,the ,.cost'of.thetest kitmaterials,of $61.;467:: i' ..' ",'

, Although,,' in, sev,eral",instances:: the. Federal· agencies.' ·suggest' .tn-at.· the' cost.per.tes:t. Of, the, :G,uthrie.kit.'.was: ,1.2 : cents: per. test,' :,thisi is clearlyerr.oneous.T;he:bwlget, supplie'dby, the: ,Children's', Bureau:jndic'ates:that' the 'actual costof .the test ,kit. materials. alone was 9.2 cents per test based· on the n~ber of

UVV';I!.I.Q,.!.'U.IU.'.L'J,I.'1··.L' • .Ln..L..L:.I , :" ...

blood : and urme tests.:..L665,9~ac:~ua:l~Y·,perfo"r:n1ed,;'during! -thecprogram. Itshould. be noted that this. is: 'for ,'·nia-teri~IS\~ost'·--onlyuand- :doe&uot .Ineludeother costs' 'attributable: ,to cmanUfa'cturing):andJHdfstributiou': since'. it. ascribesno' 'labor" or ·overhead.:. :'·These"costsi,a:,re:"not';defined·,iini-the r.Ohdldbenta -Bureanbudget;>' !';';'.i,,:.-,·;;:j 'i,e:" [Hi:; L::, f"·:.:'L',-; ·,.Hi>,';' ';:!i:',d (,1 . I,' " ,,':'d;.-:;

Only Jhe:~ost of the test material is tnctuded.Jarideven. so.uie.cost.was .several'ttmes'trie amo'unt'o'f,tbe reliable cost.

It is, Impossible to determine what tbe actualco.~tpertest was during tbeChildren's,"Bureau '·program\" ;·However,. 'it cai:l:-:'b~',concIUsively",proveri'that-the'per test cost was more than 9:-2·,;c~nts\a'nd\llot',the<t;a.centsper test as indicated,in..the agency statements. ~>'! ,:" "' i ., ":"" ' .,.,',," _:,,': . <.' '_ "'_ .. ',,-. . .'f .

. But.Iregardless of what' the 'costifm'aY"or may' riot" be for' i{-"govefumental'agenc'Y. engaged .inmanufacturin~ (1~~W??~,P~,' P7qq~c:t~~ 0 Mm, I?~~~iR~!?:t<l~e~t~o~is what are the costs-s-and resultmg'prlc~of'a'reputable;"expe~l~nc.ed,p~lvate

coinpany 'that must ass1illle au legal -responsibility' ror-enn, ~~~:;~,ell~d itsp:rOq:ucts. Further, it is impractical to' compare the costqr,.:pr,~~€!,-oJ theorighi~l ~eld trial te.stunit with' that "of the' Ames' product;' ·It.~<?u1.d besim,ila!-" to comparing a m?del T. For~ to' a '1965,~iIl~01D:,,_4-lthpu~hJ)~~h arefor the same function, the model T is obviously a 'rUdb::henfary'form of' trans­portatio:iiand the Lincoln is a very sophisticated, highly refined prod],1~t~

.'!Ifis' important 'that mlsconcepttona concemtng-tbe 'price' of the' Ames' producthe;c,orreded. It is suggested in certain melQ.(),:r,;;J.HC!.WUS.,by tll€! <;Jllild:r~A'.s ..,Bureauthat the marketed .price·of' .the Ames Co.-for' the "Guthrte test kit was'$~6~AO

for,:50~ tests or more;,1;l;la~ ,5~:,CW:lts.per,tes~., ,rrhis jS"ina,~:cl;lrate., 'Xlle, testkit.·prpduced"by-- Ames 'has' never'been','priC&!- a:($.2,62.50/·nor','has'·it 'ever 'beenp~.Od,.llCedin'unitsof500~".'·"·".' pi!L ,'.. '."':.',Li.c.",-.:"I';·''i-' .,' ;~:",

:,1" do, not know where this iJ?f~rp1atio:q...Wl\13.; o,'b-t~J.p'r9;.,. "It i~. :wr~Ilg. It iserroneous~1t is false.'" In fact,' the test ' kit has' 'been' produced' only in unitsof,'.'S~Q')~iJJ,ce" tl1~;,.-illcept~(jll:!p~, ~~'.~a:r~~t41g:,;"by':-tll~':;Afll~s.,(JO;::' .~El 'pri~e"pertest' "of the.'Ame's liit \vas"' 42 "cents per test'from"November '1963' until' Apr~h1964,-:" At that.HmeJ~epri~~was cut to 21 cents per test. '

The' misconceptions' c'oncerning Ames selling price iUl:PI~.:lilIl,.UIlcQnl3G,iQn3:~Ae,.profit. This also is wrong. .' :,:,;.'. i".:'.';' ,,<.',,::,:i,:-. ;'J,:'.',:.', ,.

In this connection I ask unanimous consent to haver pelnted in,tpe ...:R,~~()~~;at this potnt a memorandumfromthe "ice presireil,t o~.financ,e fo~ Mne·~'r.abo-ra~tortes, tnc.; to"the. .president of·,-A1l:les.' ·C6.~ .J~h~'"G-.~orge, ;O~:r;' coIle.etniIig' a" costanaljisis ,Illade"?f,the' .AJll~s ce. P,~tJ"!>l(lOd;t'est:.flt~': ..,I~'~:l~o-as,k,"uri~niDiousconsent '~o ,?~ve ~r,~~te(r Iri -t~~. '~,~~9rfl"'~t, ·t~s,: pO~~~I;l4" tlg~; 'is.'(j~'. eq,mq-jm­pj)rtance--:--;-acopy'o:t;',~~e ,exa~:nnatlQn . made ,by tlle"'publlc"ac,coutltlllg;firm 'ofPrice Watel'ho'l1se:&'Cd;'~ '" :.".. .,.,". ',,"" ,." h''-' ;"'.d' ,. . ,,'> ""." " ,:

There;' being "rio idbjection;"the .materrer ~asf orde~ed:i'to;b~' ·printe!:'l.·JIi" the'Record as roltows r . '. "'."!!'. "! ""'",.' '.,,".,:-.,,',"',"

, ;';' i")(;f' '''.: . ,,': , ,." ;;it i' '.':':".' <,. ,,!..';, "'''"",-,'.'j .-

i;;:j\1p:.ES ~"LABO.RA-TOR;m~; ;INO:~ ;,;r~¥QF~IO~,·_COM,MP:NIOA'l'IO:N'''-';

,··';,h·',: "'I, <", '~1JIla;y:25,).965.."T~,;:G:~o:rg~,W·Orr·"i .-'.':'

. "Frorn,: "J:o.$eph: H.; l.Ioyt~:"';<I"i' ':""Subjeqt,:; ,An1esl?~;U blo-od,te~t:kits:;:

"In accordance with your request I have received.our-sales-and ..cost recordsin regar(lto.:s:u}:)j~t'1>r,od;J1.(:1> '

"In my opinion, the accompanying statement of unrecovered costs at April 30',19615,·qn; 4Dles PKU .blood test.atts.preeents fairly;the· data Shown therein.

"The unrecovered cost to date of $131,823 does not include the .cost-Pf:;$50,OO(),~or: the, film,:~PKU;:Men~al.Deflclencw.Dan. 'Be:.Prevented,' .. nor.cdoes ~·~t

Include ,~n;.:~llo~a,ti.Qp.j.foI.:,corpor,ate:overheadrexpense.. STIch: as.executtve, ,legal,fiI,lallcial,., j);r,. :~d:minist:i:'ative~ ,:These' Items .have: 'been-.excluded .bccause, it'is, felt·they may,be:colltrov~:rsil:!-L· .". . .1."; i ':' , . ,,;< ,.,

, ':'The:recorda .show. .thatour cnrrent 'selling .prlceror, the:.Ames:PKIJ,blood-teet.kit is 20.8 cents per test and, thattour. direct.production and 'dtstribution.costs are;6.6..centener test.... However" artcr.mestne.uuownnce .fcr-eontinuing'.manketdng,resel,l,rch,:a,n4:,d~v~.$io~al adminlstratfve -exoensea.a .estimateour total .operatdng 'cO;St;~tiL7,.'\1:; eents per. test., ( ·This; ieaves, an, operating-margin:of approximately-3~4!Qe:nts,-per.test....'. 0-"."'" :':.: , ." ,[-;'.; 's ." _. ,

"If .A.rp,es,.i~,:apleJo:sell·~e8ts:;fo.r20 -perc~t,of the,tot:al.m,:S;;'potentialmarket·of 4·million babies,thiswould produce annual operating margin of some $27,000.

UdO U',v.,'o:~,CI.~.k'iJ.v.c.lJ,lJ.'i.J.: ir:t:!..J.~J.'l'J.',' ,r;'A.y,Lk~~'

93,75326,963

"O:iilcA~?,:.·ILL.;M~l(26,:196?~

At this rate; assUIllin,ginOjfu:rther,.:J.",eQ.~ct,iQl),ijJ:l)pric,es.;_it,..y.ill.tak(' ~bo,~t 5,.;y~ars_to,

recover.those costs zetnnrecovered atAvr:il3-0, 1965., " '" > "",,'

o"I,.'Prior to' AVril'1964:our's:elli.ng!..Pl!iG-e_1w;al3;,41<lc~nts pertest; .However,.at th,at,time, our production ,and}distribution,c.osts::alQn~,w,e;r~':1,5.1 cents .per test.. ,Thii?-;higher cost was due toheavy quality control charges and other increased expensesattr-ibuta-ble,tothe;learning.-periQd. - :<; .. ,:'.i' ;':" ' -.". ,', :,,'

~';J;OS,EI'E::JLI:IOY:'l'.

"jJiile8,Lab.ora.t.ori~8,,1nQ'--::7Btat6m6nt,of ,tt~r6c,Q'1{f!red,,fj,0S,i8 :~tApr .. ,3,0•.1964" ,em,)Am6s·PKU;bloQ/L.{es.t,jCljts " "

"Net, sal~~,pf ~es,t k,it~ ff.?m<~o~',l". 1~~3 t?:~p;ri,~;Q, W~5c':~:':--~;-c:-:::-:.~,~$~.7~,: :243'costS~Iid.e*pe:h~,es'.,flpp~i¢lil?1~l'6':tll~~§esfil~s:

~~~~f~2li~i~}il~~~~~~~~~~~~~.~~~~~~~~~~~~~~~~~~~~~~~~~~ ~i ~~TotaL-----------7.------C---.---.------------~---------------- 83, 350

..Y\ .: __ ::" :.E:x:<:essOf .co~ts;.a~ll, ~~pe)l,.ses---~;;,'":"c;_:_'::--,;,7~~,c-~::7'..,..~-~.:-:- ..:-.:,..-~~ ,,11, 101.Add: . .

Cost, of :researcll. anP-, ':Cl~~el?pUl~ilt commencing ,in·..i962- .:"?-~:-;:-~Cost of special equipment and faci1ities_~~---'_--.:.-_'.,._,.;.:_~-....;·:,.-_,

Tot~iuni:ec'dve~e'd',:CPiilt'~., __ ~ t 4-pr. .i?~; -- ,'.~?~:_;:;- '.C,- --:;-7r::-:- ':C.; -:_~:;- .131'~ __8~;3a.Rept-esents 'division !l;peJ:l:se~:basI~!1JIY:Rll?cllted.us a, p,er,c_e,llta~e to,: net .sates..;,>:No

amounts are included for ,cp~pol'ateadmtnlstrattve overheadexpenses ,of l\-1iles,LaboratC!l'leS,Inc.:" --,",-,,,,' "", ,--, ,--",.".--,,', -0; ,••"." ,,:, ,', ' .""" ,,-,', ,,' :"','.- ",:':';, ,i,> ,'" ':,"'"",,-,,, ",: .',,' :-"

"The'BOARD OF DmEOTORs,"lVile~ .Lab,oratories,tno.;"El1cl/,art,.Ittd.

"DEAR,Sms ::\Ve have examined.the conecltdated financial statements of l\nies'Labomtortes, 'Inc" and Ita.aubsldfarlea.for the years ended December 31, .1962,1963, .and 19M,and 'have. pre:yiously expressed: our __ opinion .thereon. under datesof February i1,.1963"F,,;~rua,ry17, 1964,and,February 1,9., 1965... OU!' examina­tions were made in accordance wtih generally accepted auditing; standards andacgqrdingly Included suen.tests q~Jhe accounting records .and such other audit­

,Ing 'procedures as we considered necessary in the circumstances. .:,:,,' ..',,::"As a supplement to. the foregoing examinations, w,e have examined thestate­

ment of'u~recoveredcosts'at>AprU'30,1965, on' .Ames ,PKU''biood test kits, andmade' such addfttoeal tests of the pertinent accounting records and performedsuch other auditing procedures as we considered necessary in the circumstances.In our opinion, the accompanying statement of. unrecovered'. costs at 'April' 30,1965, on Ames PKU blood test kits presents fairly· the-data shown therein;

"Yours very truly,'fP:MCEfW:ATERHOUSE CO."

Mr. BA-YH;" It will: beeeen'tthat: the public'accounttng:,firm 'r-eport, supports. thettnatvsis. . '. . .. " . '.' ...",..' ... ')'I'This;,memorandum-indicates,that.· the -total .operatfrig costs' are '17A'cents"p~1'"

teet.jeavtng.a. margtn.of approximately3A cents' per test," Against: this the AmesCo;/:,is,itl:ying· to .reeover .costs' .'. which-ito Apri130, 1965;'w,ere'ye~<unrecovered Inthe :amot;Int of $131,~23. The unrecovered. costs '"ere' largely' involved' ill: theresearchtand the •development of- the .product 'and, llcquiring special. equipmentand- facilities .requtredror the; manufacture' of these, test kits.

There· is .avery 'small, pctentdal market for '. the: product," one' in' which- -thereIs-Httleivolume andovery-Httle 'hope .of profitability.'· Further!' cln' 'the-highlyscientifically,oriented,;pharmaceu'ticalindustry there is also the problem ofprod­net obsolescence because of new research and technical. achieveIIlent, -Researchis uow.belng conducted by other companies in this--veryarea,of-medicinel

UV'V'l!! -U..l-'..lVi'1!i..l-. "i",.t'Oft'i'1!il-' '.1/' . .1'.U .I:.ilUl',-' ODt'.!

•

One.'prodlict- ,', is. :l)eing':,tested':llOw)/';whiehi if-'it ptoves~tO)rber~ueeessful,' .couldlliake(:lb~olete"ti~e'AIl1es),produet;anti!!the-,product:Of,its;:'competitorg;', ,,' ",'r ":'

'l~~refore i~' is'--'iilipossi'ble:to':proje<?t'theAength' of-tfme.itihat. the::Aines :test willbt"':US~~i. It -is::d~ffieUlt;then;:to'in~ure:recoveryof,the;unre<:overed.;costs.rtodate;1 do; not -beltevet'tfiat ~the;prese.llt .costdeiprovfdinganunconscicnableproflt.t '

In, keeping with its .respoIisibility, .emeeOco thas uhdertakeninntextenelve.pro-.gram of education concerning this form of mental retardation, and the use ofits product for, the detection of this 'condttlon. Such costs are a part of bust­ness operati,0:~N3 ,~119--, wl1st"q.e,a~~g~~4,to the products involved. These, costs in­clude:s:ucb'itgrtis' 'as,:,me~:Ucll:I.Fte,rature;-Inrormattve. mailings, and .sclenttflc ex­hibfts. In ,this'particular caseAines Co., is not assigning to thisproduct certainother education~J,l;~~t.s.'Y:P,ich,c;o~W.'~.a;t~Fil)Ut~dt().~t. : '", '., .

An example of the' latter is t;l1esolu~cl:,motion'pl~.ture"en,titlEtd "~:I{-q-::"'~Iental;Deficiency Oan Be Prevented:" "Ames \ ririderwJ'~te"tlie';'production"of' tlrls 'm!?,'whlehwasproduced -under the direction of and: narrated.by.Harry A."W'aisman,

.Ph.tD. l\:LD:, -pr-ofessor- of pedtatetcs, ..Universityof' wtsconstnnredtcat.Bcnoct. 'Fifty 'prtntaof thts fllm.have been'rrnade.for ,Ames'"film:librtlry. ,: illllere'are .anav~rageof65to zo.showtngs per month, and it is esttmateatnatme.mm.neshe,eil;:viewed by.well ove1"190,000persons;. 'Pheftlnr ia shown to medleal.nursing;and -medioal- technician' studentsc. 'hospitalmedical' and nursing staffs..;' medical;nursing,and medical technician s-ociety meetings; and even.to.college .andhtghSChOol''Science'.s1:;udents.',' Several-Btate publtc.ihealthcagenctes have' -purchasedjirints of therfllm-c-af cost,'df. the 'printdor .thelr-fllm.Iibraries;

I had tlle.good ,fortune co-seeothe'rfllm. 'Ibelieve,tllaLinosLSenat<ws wouldreeogufse-the importance' Of 'striking out' as, forcefully' as .wa.can in. every "waypo~~ib-Ie to prevent mental illness and ,mental retardation.' Tf;it.w_ere,possi-ble;we 'should' -offer. 'to Ames'a -type. :of·,"Emmy"·; award .for-,eheflne "production .... andthe public service t!lat,is being renderedby.tlre.fllm:.}11.' summa:r:y;'an. analysla. of the,expenses [for.the ,Aines::bloodtest'. krt.wcllshow

that: the price is 'in -keeplng wlthgood .bustnesspractlces .and well-wlthln reason.The product is 'being marketedbyxsmes.Oo., at a reasonable prtee.

O~r'~Nattcri' .Is :bee_oming, jncr~asinglY aware of: the 'serious .,effects,of,mentalIllness.. Millions' of-tdollara are spentaannually in an 'effort, to: cure those ewho,are afflicted. In fact, .thfs" Congresa-has recently-embarlcedruponra. programwhich' will .result in rtnvestlng'<signiflcantly higher .prcpcrtdons :of: our nationalresources Into curing and caring for those ,,'hoaremental1y ill.

Fortunately, for our country;' .meuand .women. of- science. andmedtclne In.rbothIndustry and academic life have recognized the need to do battle againat.unen­tal-Illnees Iong before', the, Il.lajo-rity or us tn.theiHalls: 'of.,Go'vefnment. -Becauseo~ t~eir Ieadershlp,' .signiftcant technoiogical'accomplishments·have>:been, .madenot' '()111y-t() treat mentaf illness aftel-it. has 'been dtagnosed.but oto-prevent-thevery occurrence-or the-disease;" ,

Dr: . Robert Guthrie-has beencue. of the ecadeinlccontrtbutors. ;rre.tras.con-. i

cetved a test which will help make it possible to save several hundred.tamericanbabies, '1:l.oys and'"girls, and :~Yelltually"men_and:women,cfrdm'being.afflicted"withmeiital tretardatlon each-year, How much-wtserIt. is' to-devote .resoureesto rtnj­to.pl.·~.Yel~t an illness from .. occurring thin' t6'be.'·face~;·.with·the-altemattve ;of,spending' ma~!'tillleslt:hisumount of .funds and:effol"t'for,treatment.

Ames CO,;ill:du~trial'scientists 'had;:dev:eloped'aurine,tes.t to,deteet::PKU before':the development" of '.the, 'GutilJ:ie."blood' test: Ames urtne. teste-although. it mayhave, thE!. disadvantage,'6:fdet~til'l'g'PKU' 'a. few. days.~a.ter'tban the Guthrie bloodtest; continues -to be used, and-has- made a .contlnuing- slgn~ficant"~ontr.iJbution-tomedical. science; .. B,ec~ll~e of 'the ~ffortdevoted to the capseof' 'lIlJental: reta-r~ ~~

tlon prevention .byAmes.,.Go;,:,manY.'j'oull,g'Amel'icans are' whole 'and ha-pp~'in~

stead of ·facilig a life-long'tr~gedY. ;of.·· r~ta-rdatiou~ 1,·:f{l'r"olle,· .think' .tha't' 'Dr.Guthrie and Allles -Oo. should be -compltmented for the effort' th:yha.ve made-forthe development Q,f effective blood tests: against P~,U'~nd';for·t;h~,~ffort.Ames Co."has lllad~ tomake this product r~adi~y a;,,'a-il~ble.tomelll,J)~!~',OfHleIll~dictll.~ro~fession;, ;-:',.. ..... '. .": .... ' ..... "':",", ,,: .. ... : -"'" ; "".'

·W~.'In:the 'Oongress and in the S~ate.legislatnreSJrec,o.gni~e·0'1)1" r,~spo.nsibility}.oenact jJrograms. which· deY9te ,lllore _of our resOurpe:s f()'·;a~;'3ita:ck -against' thedreaded mental diseases which are rampant ,throughout'.the,: c()lJ,ny-y."':. 'But· I bi'?­lieve that,yemus,tals.o:rEteogni;ile;phat,mental illness' can 'be,' arrestoo Only withtile ftiII cooperation ofgovernment,:indU'stry, scientiS'ts, and educa.ti-onal institu­tions.:

OQU} UVY!J.:!.jLV.L'l.LV.fl'.,o'J,;'i'·..I,'.,r n...I,;£<~'l:;.L: L,Y..,:o:.L:V~-)

"':<;' ;J\li' 'tc;!::\'!

'ilL;" i<j;'

'·tii

'i ",

1Lmakethat-statement .on th~ floor 9'f·:theiS~ll,te.and ta!r,~i~e.t.iIJ:l~,,qf:Senatorsonly because.Ebeldece-It ds:Importann.that.when we ~llla¥-e',ij,Cc.llsa,tionJ;l:which.t~~qto' imake: such' __ cooperative, ventures-between, :p:u~dicinej:g()v,E;!'r:n.m,~taIl:ll.,et'i)l<;:-a~tdonal :Instltutione-Iess- ~ than' i desirable- .we- are I.i:li ,f.f\.ct; ! not: ,,~e.rY~:pg; .the purposewhich' we,',jl.U' ,reaUy',,:wish,to, serve ';! -namelya-rapid-reltmlnatlon, !.of:'lllep-.t~l.mnesswh'erever,;it,mayappear. .anddn W:hatever,:forroit;may,app~ar. /;;

Hon.J~H"'L:MCCLE~~::::'." ::';i"'.'.~~Lii~~~~~4"#~~r~~~~~~;'19~tH'01p,aj,rmatj"f!,1fqcorntn4~t~fJ '01ti fMen,~8'iXr~~~t&k8,afid, 0jqP,yr.tf11yt,8,. .J.1J:(lJpi~ry:Opm.1J'J<i~t;e~,:Q.~.:#enq,~:f!,-·YY~1f:~g.t.9~/P·'O~;:,) ','" ," .. , . "i ",.

DEARI SENaTQR.,MCQ:;EJ:.LA:N :-IThisdsinrespons.e eo ;yourjnyitation, ~t:the, ttme.of,introduetiomof;S.'1809', a: bill to.estebltsh.a.uniform national:po~cyconcernlng.propertr-'; rights .and. .tnventtcns,» to -communieate: comments .and ::any,;prQ'Pos~,(l.ameudmente to the bill.':!!:i 'i iU'"'' "1')'<1 /:':;

.:We"suPP0rt!,thebill es.a reasonable and .balancedjapproach: to-the bastequee-rtton- ;Of!,:"title,versus -Ifcense". which ;u,nderJj.es:the, esta.'blishment! of.!a;ny iun~fop::p.;

Gowernmentrpaltenbpcltcy, '. ,.·i'", ... ,r' .. 1 .... " ',' . ,.

:'Thei.·following: cbirify'ing; 'amendments are, 'proposed-for. -the,.reasons.notej. In,the comments appendedrrvd'hese Iamendments do pot, 'affect the .design. 9f jthe. bil,l;;nor'do,they'resultin'changes,in-the:uhderlyingpolicies.' "", .,.'," PageBc section B(b') (1 )'1'. ntne. 24,: change Ythe prompt; and·;fun;:di'Sclos.u,reJ~"to;

"a;:-pr-ompt-disclostiIfe"., . , '1].111'. .. .I .. , . _.., .' __ ., ".'

: '. eomment.~This .conforms theuscor: the' -teem. "dlsclcsure" .in CONTRACT, ,RE,QumEMENTS with its definition in,section'.2(f)-,:·;< ",;;1.>';: ''''',i "-':,':,':_, ',:i,;,;;! ,,,:;

Page ,4;''-section- S(b) I(8)i .une ,13,· ,after,·"license1~inser.t: ~~shall dnelude. the ,rightto-grant .sublfceneesof .thesame.scope .to ithe .extent the, eozaractor.was ,legally,obligated to do so atthe 'time.the contract.was awarded, an:d~"'>: >, :",,! :""','\,,:'X

i :Camment..;....;.,.'I1liis wilI:avoid; placing-the ccntractondn-a, position.of .meonststsntcontractual obngatrons.r: ,·The Inserted. language. has been: ,adopted .mom- N4.S.6/81watver-regulationa wuere.Ithas been-employed-rslnce 1962. ,. ;,. ..," . "<

tSection 3(b)' (3 h' :Iine,;15" after:~'par,t'~' Insectra-pertlod.tstrtke ','and'! and- Insert"Suchlicenseandright",.'j·' i;!".. .". .._

"Oomment~::':,rhisi is, arueditorfah modification -necessiuated ',by,the next ;pr.e~imlS,amendment..., "''-' .', '.';;' .... ' .",,, '", .. ",

Page:'5i, section B(b) (5 ):,-line,>7; in subsection (a)." :;tfter,;~,has not':' insert·'-'withiJ;1threervearsiafter. a-Unlted.Statespatent.dssues.on suchInventlone., .C·.·:: ".~: ,i

, Comment'T--"It would;,.seem:,thaLa,contractOrl:,shouldi llave,a reasonabletrmewithin which to demonstrate efforts to bring the Invention Jo .thepoint.of pt'a;ctic~h

application) :.The' 3~yea-ri period, is: the; same: as ,that:,employe,d,·j.n: the ~resiJ:te~:tifl.l

memorandumc,.' ' ... _ ... ;,' ,.... , ... " ... " .... ', .. ',.,; Page ,5;'section 3 (:b),(5)" line ,9~: in-eubsectlon ;,(a).; aft~J:"i ('prl:LCtical. applicatio:n";

insert, ,"or'has,made,the,invention,availa·l)le, :for<llcen,~ing,r:oyalty~fre.~"or. on terws,that are,reasonableintheeil'cumstances,'!..: "_,,, '-, .. ,:., ," ,__ , . '.'. :", ,

Oomm-ent.--------,Thisi suggested, amendment .has- ialso) been ,a:~()pte.<l::frOJ:ll: :tb.~, p'J;~sk.'dentiaf memorandum. ,A:, compulsory; .ucense.,Wi9Uld:~PPe:ar,:u.J1n~<:.¢~sarY.if::thein,vention:iS.ialr.eady-availaible either r:oya~ty~frglOl·o;r;PI!-· reasonable terms. ";}.Page 5,,' sectton.a (bJ:(6), .lfne ,-1~, after. "Ill.~y:",j~~e.rit,:~timely.'.':"::'; ,.,.: i. ,,::;'"ao.mm,enJ.~Sin,ce:time:is, Qf .the essence.m,pre:S,~;I.'v~,~g: ~o~.e.~gD, :rights'" it ~ppear$ ,

desirable to.anueeto.ttrtsrector.. ", i(; 'C' ,'ij',' ,,'.> ,,!, ':":',i~ "<: " .'Page: ~j .seetdon S(b) (8), lin~,4,.a~ter:';'pJ,"o.mp.~'r.t!3,tr:ike ',:ft.1:l~, full." " ,,'.. :,: "",,'aP'tU:~lt~t:.~S.ee, GpmWen,t: ab,O,v,e 'W:~tb, respe,ct>to, arnem1m,en,t ;to ,s~tion·3 (p»)(1):,

·,P.ageJ5, section,8(b) ,.line 6,.afte:r.','gr,aD:t~~':, :(~econ,cI;s~Ilte;nce),qancel~'und~:r~'­and) ins~wt '!~subjec.titQ, :th,e,:l.~c~Ilse. r.e~~r:~ed,tQ,,~h~, (lqntr,aGt.Qr, by, .sect,i,()~, ~,(b) (:?}and':,'a,fter:'Eiuch;'iIlsert:"pther.u,,:,.>.,. "::',,,""" ,,',:,:; '< ..... '.' ::,:-','a~mment.-This·insures that the lice'nse reserved to the contractor is l:etl;lirle4,

despit~,tp.e, :,d,~sigpatioll::o;t th,e,.lip~IlJ;le:, ,in:the, prlweeVng:set;lten,<;e,.:as .','e,:X;~I;us,~v:e~ ~:'; . •we,appr;e,clat~.( tl:Ie, PPP,m;tllI!-ltY"to,commen.t ,pn, ypl,U":, bPI:-a.Ild~e .fa:,-;·or.)ts

ad9P~io~·:ove.r--, t4'~"qt.he:r .,p~~~p.~jpp:l~cy ;l?~1~\3, ,p'enp.,i;t?-g)~~f~r~. X?Jit;~~b:<:?:~~~te~", .

!,!: V~~y tr~~Y; Y;OW;~, /; ':I'j;:,;;:."i:)j~ii:,*:.;:~H~¥~;L~i..;;,'~~t~:4(4!~,tq;Pft~y.

......v,.i.+'I ....~>...'lJ.y.J:.J."f,I.'\I.;.a: !·.r-;A-li..I',iJ.'!ji.l.:!, ,rVLI.I.\!i,·:l) OUlr

,rH,d;;u:\·Ill»,,:;'. ,,' ,i' ',"I; ,;,'~,~ ,,:I ;NEW':HAYEN,.,CON~i,!;-¥ay,i26j,1965~\:'Hon. JOHN L. MCCLELLAN,S,ena,tfJi fJmCfJ,·BcutliIJnu,-, 'F,," .. , ;fi" :J'

Wq.8l1,4ng,tOJl-./.1!,.,Oh ",,':<:;'1" ];;;<

D'EAR:SIR' »Pursuanf to:yo:lirlettelf:Of;.Atprl:l30;,1965; 'r,:':as a'member-of the patentbar,'·:have:take:D.':soilie['Jiniterest', ill-'the ,current'.' sitliati'0i11 'which" ha.s':de,v~~ope:d' in'connection··.with'the .Government 'patentJpoli'cy." In: partretnar. I, refer' to'S.' :1800,'S';:1899,-and'S.789~. ." ,j) "j "'fr, '";''''''' '-"Uponoeareful review-of. ,these%.ills',! '1 would) saY','that,:the :S;:18.99"~'p'pioa,ch ',6~:Senator.Longus neither,pradicff.ble nor: acceptable: :1.-Itmisinterpretsthepurpose:on.the -Presldent'a' etarement-ob-petent ;,policY" and- (creates' ~" situation' which isnot!in .the best-Interests lof,the','pUJblic} or,:tthe"contract"ors/: ..Ill'CoIltrast to' Se~~t?:r'Long's; bill; <Senator- Saltonstall's 'btll -hicludes ,vRlious'and·· sund~y' rnatter~,' t.e.','rneentave.conrnouuons rand! :awards",therefor;'a;mendmtmt' to' ,2& 'U;,s-C:;'s~tiO~:149&,: .etc, ,'In. tdiese-Irespects .ll>re'qwres's'ome-'Teflectiob iandi perhaps soPI~' 'ir;­vestigation by. -the: P~esidential Commission. in order to develop aufflcienf ;in'for-me'eton'as-ro; the,necessity for making,such: changes; , '. " : '' ,, .illhis.'ileave's,! tor .the 'most,pa:rt,':your l own-btu, sir,. B,' '1809:: 'as: tli.e Io-Hl':w:hfch

should-be given careful 'and' IlIOst"serious1considerati?n ;',bjr' the 'Congres~''at' -thistime;':: :Bowever,: this;em','does: reqUire -au 'least: some': Inin?r,' clianges,p~imarily'eenterdng- a1bout·the,' implementation' of. 'the- qo-verriJ4ent','patent,po~i(~y; 'so, ,ag:t<>fu-l1y, 'develop the "be:nefi~ 'ito? itlhe; 'pUbli~; ,asl 'a- 'result' :6f:,the'vestill'g"Qf t~e 'ti.~lein, the. 'Government; ''A.CCdrdi:hg!Y'ii'after,:'careful''eom~id~rati6n,.1:'sh0uI~',1ike: tosuggest" the:' followingt amendrrietfts' f to" 'Your;: par,ticular "btll. 'T "beueve 'these'amendments would .strengthen the hill; ..;;< iJ.'fi.i i; . " " ' ,',

'iPagei5; sectlon.g(b) '(6},' amend to read' as'roncws :,]1 ';.,

,n(6),: providerin the' event ithe-:principal:0r', 'exclusive' ',rights"in>:',3.i1Y .Inventionar€!'-Rcquired",by':the:head ',ot;the' agehcy;onb~half':of th,e" :rJnite.d,.~,tate8;' '3.;lldsuch; agency 'head' 'does not',~ictm;rllY'OfHe -a,'pateJi~ ap,plicati:oll' -In~:OJ;der' to "securea :pateIit dn.theUnltedBtatea o~' in-'any' fo~eigh( 'country"~fore·.a;predeternimedtime;' eatd'fpredetermdzied -ttme .not- 'bein:g;greater \~lln, nlne' lllo-ht,hs 'from' the­date',of· 'disclosure: of', the. inveniio'n rtb'th;e--a',g¢cy aIl4',i,n'aJiY'~v~:r;tt'not less-: ~hanthree' cm:onths, before': th~: Jstatutory; ;b~r' da te.. .approprfate :mea~,s~"where~Y. the'.Prill:cipall rrtghta .In-the invention. win'.,automatically: r,e\Test!'in \:the "contractor .if'either '{ay" notice':is not igtven :by':ttie' agency' -head''tc "the :,cont'i3.ct()r ;~at~. a'patent application has actually been fl'led within the aoove-menttonen prede­termiried-ttmeror i(ibYtthe agency-head n'otifies',the" contraetor-thatne doe~"notelect to file a tpatant app1ic-atib~.in .tbeUnttedBtates 'or' in' any.foreig-n'countriesbefore the,predetermined:, time: 'mentioned "3;bov-e;,: subject ,'to" tile':rights 'reserved'totheUnitediStatesinsubseciion::,(tb) (2);.ofthis sectdon':" -'

!, Page .8" 'sectlonr-a (~b);" -nns. 7;:'after' "he' 'determines' .'. add .' "not. later tthan' "siX;months". ." '.. .. . .' 1\'

'IPage: 8,-'s'ection' 4(h) ;-,line i 11,~.ad-d' the fon0ivlng;Seli~ence.::"'The,'ag~ncy;sh,an

reimburse' -1:Jhe,contractor" for ',the :~easbIL~ble:' expenses"enC?untered:,in' Jili,rig:','~;patent application',or inJI?rosecuti()n.'o~'a'pa~ent'a':v:plic,ati(jn'in a~'ycase' whe.rethe agency dectdea to. take -g'reatef than'.'a¥Orie:x:clustve licimse."':'--·' ,':.. _;,Page::15;: sec'tion i ',8 (a);" :line '10,' after""m~y '.btl ,gr'anted""'}ldd ',' "only";". after

HWith""'dele't(:l"'!or:~lthou,t'}!",., "" H'."''- " ','" ',"'" ',;'f ",,,,,-,,,:-,;:,,-> "",,' .,""',",

Page'15i :.section 8 (a);, line 11;:afterl<th~" United' States:"tidd',: ,"'each ,'a~ene;r isrequired 'to 'institute' 'approprhtte judicial,', pl"()Ceedin~s', 'tt).en~orce' tire' principalownership' ,n-ghts; o~' the. 'United ',states',) Iri'()rd~r:)-o 'pr'everi,t. 'others: 'from "1Jsing!its'patents' ;without :the ..pa'yment' ,of' appropriateToyalti.e's. ">, :",:. ::, ..... ',,' .. ' ',''lin/,particular, !,propOsethat s~ctioir"3'(bn6) he amended to provide ,that. if

the''Government '·takes· title' to',an':i~vention'all{l.does'll'ot'actuany.file .·a·p/.ttentapplication within a predetermineci-"time ::limit;, the ,'~ontractorthen be grantedthe fright, to regidri,the:title and be'Iiermitted to'file: a 'patent ap~lication;~ubject,naturally,,: to: the' -rights,reserve!i': ~o' .the Up.itef1, 'States In :.S€lc.tion . (bU2yof!section' 'S,: ~o' :thatpr6tectibn' :will 'Ilot'.be }'ost 'to' "both"tlie"con~ractor',~;nd:~h'e:U1S;~<Government: As ,sectiori"3 (b)' (6')-is, currentlY: 'written,' there' a're 'no' pro~visious which make it necessary for the Government to actually file a patentapplication (assuming the invention is patentable) unless it so desires. Ifthe Government does not file a patent application, then the contractor is notgetting what he is supposed to get under section (b) (3) (that is, an irrevocable

54-400...,.-65---:-pt.2--18

UU~· I.iUN~nl~ lV.l.I!Jl~'.l' "r .8,:.J.'.llil~'.l'" '.J:'UJ.UI.;·!,'

nonexclusive ',royalty'-free.'jicens'e ',foi"~ the practice of .th~in'll{ffition tll!.~ugh~,utthe world) , " "<.".,,,.,,::'<:'::': ":\ ,:.~,:";,, ".,,:{

If the Government does not file and the contractor cannot;'file"becaus~'hedoes not have title, it is conceivable that someone, at a .iater ttme.ccouid 'ftle' an'appltcation co'Ve;r~IlK:thj::,;s.a:qle,; inveuuon- Jl,lld'·:t.hereby ,.preventiaelther. .the, Gov­ernment or .the, .conn:a,ctorl,.f:rQW' ,usillg,tlle Inventton.. ,;Additionally,. ;there.js .no:jllstip.c,atlon, for allowing ,tl)e, (}Qvern.me~t, to permit dnventdons.tobekeptrsecret.or become abandoned or disregarded due to (1) a statutory bar because-they,have not.flled tn.trme.. {2JJhe.,administrQ.,UQtr:',feelipg .that.ehey navenot.sum­clent funds to, fllepatentnppltcatlons.. or: (3 -) the-udmtntstration oioj.uestrlugto:ftle "patent.app~i.c:atiQus, on selectedj:Q.ye,ntions,;,unless, the .contractor, ts given anopportunity .to.uc.Ieast attempt- to .proteet uie.Inventlcn. -rnsubstauce.rtn.tnepresent clause. -.to)"" creeenon :3(p), 'Yl:)U' have. attempted .to-accomplish:this pur­pose. with regard,to foreign,rights.,· It,is,beU~ey~:jt$hould_:be(,:extendedto the:rlghtsjn tlle:.,Un:i:te~Jc(~ta:t,e:s.so··tha,t..p:r.9te:.c.tio.n.w~ll .not:,.b,e'ilbst.to the public/ingeneral.. ",. . . .,.," ,;;:0' :'.: ,,·.i",," '::>.:,'.,>/;

\YUh further regard to the present,b.iH-,.secUon,:·,{6)', If.ithe-UnltedBtatesddd:not..flle .an appliGatiQJ:;I.: and the c.ontr~ctol':,couldnotfile,all_application,':fol'eign

compet.i-~~qJ1,could enten .mtotne. U.8,·'.market eveu tho-ugh -the-U. S, .Governmentwas .the.nrst to own the, subject, inventfon .and. could.have.ftled.a patent uppltca­tion. ':['his"is,Q.u. addltfonal .baals fO:r:,rlDY benettnat.ttieeontractor -shouldrbegiven the chance. to .. file tntheeventjthe Government, doesnot.fllea patent.applt-tcatron ,in.~:~~e,.United:S.t~te;');, .. '.' A<iCprcUnglY·,: ..aip~:qdme.l1t:of -section-S (b) (6).'.assuggested.; should be, considered. in: ()l~del>.to",Jully, .protectothe -Gozernment.i.thecontractor, and -the public of the United States.

Additionally, I propose that.·sectiQn4(b): be-amended .tojplace.n .ttme.jtnnton the retaking.of.greatervrlghts .than, a .nonexclusive-Itcense where.the admin­ii'ltrat9rol'agency::he~o.beli~.Ye.s,thllt pJ,lpHc j:h~rest.s .wouldeuffer aa.u.vresultof thecontl'actorr:et.riiniJlgp~e:pJj.Jlcipale~clusive.:r~ghtsIn.the.dnventlon. .• : It isunjust .to.retl:,lke,.. title,JrollltI:W ,contrllc.tQr-if:l#er: he h,.a~Jlled:a ,:patent:applicati-qoUand invested capital ;forl!c; periO<l.,pf;:yeal'~; to explolt .the .Inventlon.•;;Fu:r:ther,;jfthis. occurs; contractors ;w.i.llpe deterred .rrom .maldng ,ca;p,ttat Investments.unen.the rights, are p-rm1y',gst~blishEfd·.. By.. pJllGing,~: :liwitati9n,,·;such .as.Brrnonths.:definiteness would :pr~.vi3,H" und.ithe contractor ,COJ11d,' then; make .htsrplans-rtorexploltntlpn. .or .llmr,~J;ld..'iaILInventions orriwhlch'-he-has, illitj.ally; more .thann nonexelusive.Itcense.j.. ' f,o' ':'

'Vi,th .further •regard.rto .section.4(b); .Lpropcse..tllat;.inall"fairnessj ..-if:thecontractor jIlitially .files n.jjatent-appltcatton, lie, shouldbe reimbursed .for theeO)3.tf;,.of,filing ... andprosecut~ng.it .in .. the Patent.Dfflce, _trtne agencyhead deter-smines that the U.S, Government. shantake gr,eaterthan,anolle:x:~lusiv;elicense.

Inasmuch a!:l'thecontl."llctorsare:notpaidforJiling patent uppllcations, it 1-yo-uldseem fair that if they expend their own funds they should be reasonatnv-com-.nensated.tn the, event. that. such-patent rights"are .then-retaken.by fhe.Govern­lllen,t,fi.fte:r: the,:(}.o'llerp.men.t has, ~nitial1y,.permitted-the .concractcr. -to. take .the.prtncipal. ,rtgh.ts;- ,,~i'S., would-, be" In. Jige> with the·,collstit1;l.tiQ-nal:·reqllirelllentthat property should. not be tit~>:en"yit:hQu~"cl.)J,~ compensation. '..... ",." '~

AI~.o,: I,.~e;lieve,Jl;lat:s~ct~pn 8..(h} should. be limenqed _sQ, thaj;,theagency:headcannot grant any license without the payment of royal#e.s;: :,The' major. cOllten­tion, ()ftge.: indi-v~d.u,llls";~llPp{)rting,the .. (j-ov.eruWellt's ': ::taking, title:o,f .inventionsis,tJ;1at; {he· ,contrllctors pave:.·J?e.en, given: title"to pl'9Derty, pelollgiIlgto the.- ,public,in ,other 'words, ,it. is: a,.giv;e,a\vayprpgram... ·It. seems to ,lne thatif'.W,e :permit ,a ,license to be grall'ted,:.on,it·.·r,oya~ty~free :,b~sis tll,at;,tbis"agai:J:l.,. is .just,·anotpertypepf givett,way, program. If. the. GoYernment is: ,going, to :becomethe-, DWIreI'of:a pattmt" it should,. act,fti3-, an j:)'~~Wer.."..';l?a,tE;'!nt,o:wners, do:-not;·give, royalty~freeHcellse~,unless they al~e giyell sOlpetl+i};tg iIl:retJlrll;

1\8 llD a,djunct. to thi's,:1 propq;3e th~t :sect~~n.8. t~1 b~anl!'!'Dd.edto reqJlire·theGcn:ernID~ntand/or '~he ag:ency headtoinstii;uteapP1"{)priatejudic,ial proceedingsto,!O:nf,9rce,the. pri,ndpal:'9WIlel'ship rightsofJile: United::!3tlltesjn"prder to, Preventothers ;,frqm u,sil!g its,pate;nts .-WithQutpaYIDent ,of,appro-pl'iate .-royalties;" ,Tohi,'s'

UY,t,c..:J;ll.L'II.LV.l.-P'.L:'!'P' jr-l:1.:.l'J!,d."l,:J.',:l:':VDJ.U.l>,) OOv)

should be ma!ie;m~m(latorYJo;p~ev:el\t:aigiveaway program from ensuing. Unlessthis provisiollig,ins,erted"noone will take a royalty-paying Hcense with respectto G-mve~men-t;,D,~.t~nLrigh~.Without a policeman toe:ilrorce a patent, thereis no justification for one paying the Government for the privilege of;Using, it:tIt should be the duty of the Government, as the o,wne~·"to-~~:thlltfair;'anq.:5.us,t~

l'oyaJ~ies.are, paid .eo ,that users, of,the"pa,tent,a:re",~reated,Qn,t~e'_~a~e'basJs.,"t·" ';

In conclusion, i'f the D.IS. Government desires,,'to become -the-owner-of.patentrigllts,.it .should.be required to.functlonas nn,.:~neran:d,tn essence.jfiat.requtreait to file .patent appUcation~:,alldtoC'OJlectr()yaltiesfrom 9thersusiIlgA$"pat~ntri~]lts. ::Furt'ber,' it 'should' actively .enforce its 'patent rights.snthat, no onefr~,e,;'.'loads on the Government anQ.'pn"otller nceneees who,haye:~isked their capi-tnl'in '. e..X.:PI.().it.,.·.n. g., ,..th.e._illveptio.,n... ,Wl.·..thOU.t.t.h.es.e,. p..r.OViS.,iO:p.S., th.., e-9,~ve..rn_m.eIlt Sy.s.tem.'"of,'tit!e:,willbe nothingDlore.th~n an ~rq.pty 'pit into which eveJ;Yt:hi~g:enters

and'uothiI1g?l)m~sollt.' , ; . ,,--' '".' .'., ' "..'. .,~. ;,'- .'.- ',;,,'It, Ishoped that' yoi.l\Ym,gIve th~sec()r11iQ~nts'cQusid€n:ation ,cl1Jd:ng.the,h~llr.ings'

t.o 'be ,ll~ld)yi~hl'€!gard,to G(),yerllInentYllteut'polic,Y. ''l1hank)qu'15or:yo.urattenti'on, " "" Ve~y truly,.Y()lli-~;" '

THE UNIVERSITy'OF'MtCH;IGA-N; ,COLIJOOE'?F ,:'PiIA:fi?,;rAC}"Y, " .,'Ann 'Arbor/Au,uust 26,'1965.

'_.'. "JOSEPH :J:i.,:~ilJRQii:~g:*~.R,;Profe8s0:r PharmaceuUqal,Qhem,islrv

qt, AIe~k;jrial .(Jh~1J1'is,trv;:,4p.terigaiJ,.;,phemAcal(Past ,.qhetfr,»Jan,,lJi'V:i,sianSociety);. ," '

Enclosures.

Re$'1809.Senator·JoHN'L.l\1c(jLE~A~\,.'. . ".' '. "..'Chairmatt, S,ubco-mmittee ,Q11. Patents, Tr~d,emO,rlcs.an(lCbpyriui~f8,Ser!<at~ JUdiC'io:ry"QOrn:mit~({e;:wa8l~:i~ut()n'D;O; .' " .. , ..' ,

DE~~,'SENA:TOR .)iCqIJr,LLAN: .After, writing to you-the.enclosedletter of August24, Llearned of your.understandfng attitude durtng.hearfnga.last week.. ,Through­cut the. hearings, I, 'qave .been .pa'rticularlyimpressecl· witp.,yp.lir .desire to get tileessential_factE>relath~g,to. the developmentof comPO:~PclE> made l111dgr,GovemmentsPons,orsh,iP., , ," '.' ',",- ,', ... ' '",.'

The statements of Dr. .Jarues 'A. Shannon particularly ,struck' at. the heart. ofthe problem, and Mr."ralter A.. Munns offered.. a, reasonable .solutlon to theproblem. __ However, 'I. 'Wish to add that .theprlnclpleasuggested by lVIr.Munnshould.be worded in such, a .. Way that. Industry wfll know .In.advance of testingand .development. eXa~I;v:,What, its: rlghtswlllbe. ' 9'the'J;W',Ise"fi(\ agreements w:ill,bereached.,',' ,,' ':, >' .....,'. :.,'.:.::' .,' ~'"

Since the spring of 196-2, thousands of compounds have remained: on the shelvesfor. lack .. of properibtolcglcal. testing. Until a law,isenacted,the arbitraryrestrictions: stil1 .. m en'ect... will. continue to serve as a. ;roadblock. '.' .::

In the spirit 'Of the final hear-ings, .Why can not Pl'~·Shannon's and other healthoffices of the Government be directed by the WhiteHouse to disregard.presentpatent res-trictions and ,-to use itRdiscretioni:r;t .the .matter of disposition, ofpatentable inventions untillegis:lationhas been passed? Otherwise.. time, money,scientific advances, new.drugs and Hvea.areneedlessly behlg-lost because 'of afear. that :the:,pharmacelltical .Industry .wlll .. take .: a,dvall,ta.~"of. the .-public.

Lam pleased,' also,tb.at;\theh~al~n'g .reccrd '\-vi1l:rezP.a).n open.until August 3f,to,permit Incluaionof. llci,di-ti~,~p..lst-a"t~,llien.ts;, ,I .hope .the.enclosed. lIl,ltteria18:w:ill:~,e.:inclu~ed·.':"'" ,',:.c.'"",,' . ,

Respectfully:vours; ,

00,,"' GOVERNMENT .JPATENT " POLICY;

-THE~UNIVEBSITY:'OFI\ftOHIGAN,",. 'COLLEGE:'OF:P:EiARMKC't,',"1

Ann:'Arbor; 'August-24/19651•

Re Sd80m", ' '"i " ,

S'ell'ator.~JO:B:N L.;i\1:,~CLEir..iN; '; ".' "",. _ :., "',,'~hairrtUMl:;'SUb~omtnittee'01i;Patents, -1;rade'1narks, ,and, -Oo'PlIriflht8~ :S,en(l"te' jUdi.i;\"bi,~r:Y',??:ni11i:ittee_wa8~~if!gt'o~~JJr?"/: ~_!';::':~':_'_ ',:".~ .- .', "" .:'._-' '," _-.,- ':":::'_ ,-,., ,', do}

':'p:¢;A'R ;_sE~Arg~(~9CiE~Lt\.~ :Bt~~$~:,i~t"me 'i~trq4~c;~: ,~y~elf. r a:m'profes~~,6~;0t'.p'48;rlpac~uqcal· ,cheIllistry, _the tJp.iver~ity_of,1\:1;i,cl;lfgan, _Ann, Arpor.:, MicP..,;:J,w~~"born.ill :Colu~l,lia,_~.C.. .In 1912".t~e,s.oll .of,:~9-~,arq.,_Burckhalter,.of,'Ai¥:ep,.County, S~C~,,~nd ,of,Iplizabeth Str,ain",of ,For,t",Sip:ith, A',rk.", L hare spellt;,5yeal~s'in th~', Pl13:tRifl.:celitical, i,nd¥s~ry:: ,an<1,.J,8: yeit'rs)ll 'p.niy~rsi~y, Jeaclling( ... pp,r~ng'the' past"9 'years, I have been a' consultant to the National ,In.stitute8::o(lIe~lth.,Last y~a,~I :r,a,s;cl;,air:rpa~"o,f- th~, Di"~i~~pn, of, !\1E!dicinal: O¥emistry,'of 'the :A,meri-'can Ohemlcal" SocIety. In 1962,,l ,beca'Dle, tl1e.,p.rst,'recipiell~,,()f ,tl1e, ResearchAchievement Award in Medicinal Chemistry," a ,$110,00, :prii~:,spo,nsO:l!l'ld',;by,;theAmerican Pharmaceutical Association Foundation. I hav~,,!;lir~cte4'ithe:;researchand ..s,~uc1i~s,8~,,~~;,Ph.D., recipients and 24 PO$t doctoral associates. -'I am theinventor 'of 'drugs for malaria and amebiasis, and important fluorescent antibodylabeling agents used for the rapid diagnosis of infectious disease.

Please ex~,:U~ft-Jhe, rather .Immcdest statement : I wish you to know how deeplyI am inyplye;q\~~t:tIl!esefl.rch:in new drugs and, therefore, with Senate billS. 1809.

Pr.t;lse.nt'·;pa,tent ;re;gu,latiolls. of the PUblic Health Service have prevented mystudents and me from having proper biological testing of the products.produced:under governmental support. It is ironical that the p~ople ;tll:r()u~:b.'.its.Oongreas.and President ~l?ecif:r tllat ;r~s;e~rclll~3:dingto)lew<c1i~gsbe_,carr~ec;19ut,yet regu-,lations instituted' over 3' years 'ag-o-,~~'v,~,_st~~Wi,~d;:tJi9~~,~~qrts,;'3:Ild,;,frustr?-~~dthose, of 11s ",ho ,are caught ,;in, the mid,dle., .·.~h,US" the t~q:,p~e~.s'D,1op.ey,is,being­poured, ,c1~wn, ,n., rathole;"ir: 'e~e~t.';,:.. l3right; ,~~e,J;p~ti~,s,tuCiefltsespecia:lli 'wonderwhat'is:wrong1Vlien:~ur,_G:ot~rnlllellt';Vor}rs'a;t 'su,¢ll :cross~p~rP()ses. " , '"_,, ," _':'" '

!t has been.. est~at,ed' ~h~t:' l.'ese~i',ch 'l'e:p;~~~e~ting" ,less, th[in, ~"p~r~~t,of, thefunds' appropriated bY' Congress 'for' NIH~sponsoretl research 'has: ·any:.:Ch,a.rl~e.,().fleading to ne"" drugs. ~,o ,re,alize th~, ~reat diffiCUlty of flnding n,ew'drugs, the'total" research"effqrt~'~f 'the' ',pha;l"~~ceutic3:l,,industry at a,c.ost,' ,of"riea:rry, '$300miilion per'yearhar;,p_rod;uced" pnly' ?n'e::o~two tru1:v,'ndyel drl1gseacll 'year~ThUS;: th,e,'possibility,of'ftpijiH$'i,R'~ew,drug"i,s' slig-ht 'u!ld,er the",rn:ost, favQ~ab,l~c1reum~tances.','Pres~nr;;ove,l'nmental' patent regulatioue and thos~"suggestedby' Benatebtlls-whleh -wctild 'make an exception of health-supported 're·selir~l:J. Wi1~gr-eatly reduce, if not prevent. entirely, the Hlrellhood or .new medicines from'G(fV~t:nin:ent'$uPPdtt.:,",',-, ';' '. ,",,'" ",..', ,,',"" ',' '.,,":" " •",':, ,'-, ,'" ,',',','

To 'go' to the 6ther,e:x:trenre: of 'n,o, contrOl;:' WOUld, it,not.b,~bett.er, to, have therelatively ,sma,ll ,outlay,'of 'money ,llYf3:overnmel1:t, go fre,f!l;y-,to the' 'universities, ,ifi~' 'means', 'a~surillg '-developmeIl~,: ,pf, novel' (lrugs, .and r~es,t1l~lis,hipg,:import3;ntcol1a~·bra.tio'ri',b'etwe~ri,ulliversitiesandind'U.stry?' " " ,", -:

'The';Governme;nt entrusts u,niversities to choose ;~ual~fied,~~culty: and 'researchassccfates tocarry out,researc,l!.' , It should; re.lY equa~ly· ripon' the' tpli~versitiesinregard-to-the develop~ent'of 'patentaWe'-iuventions;: ~ .The. oh~y· ,cpntrols 'by Gov­ernmentshculd' be.tl:ios~·l'e9~iring:r'eports.of patent 8:pplica_ti0Ils: and of 'develop­n'l'en'i -ofvtbe inventions'. to' 'I;nake' certain tl:Lat new;',' sUbs,t[lnces"rec~ive'; properbiOlo/iieaJ'evaluattofii'' ill' -case of' fniproper 'developmeilt;'marchMin' rightS,'~,01:ild­be exerted, which would be in the interest of the researchers, thl?; "u.niyersity;'and'the public. Also" present or ,flltur~ antitrust laws, rather' tlian~ legislation re­stricting instea.~:'of.',~,n,cour~iing'develoPIllent of new drugs, seem to me to be. theproper con,rse"for.'anY'abuses by1ndustry:"',"\,, ... , , ".;,,'

I ani" deeply -dlsturbed- by 'the' fnhibitory' 'effectd!' ·present'patent·,re~u~ationsand by proposed bills which make an exception of health research; I 'presumeto suggest and hope that S. 1809 will make the following provlstona relating,toGovernment~supportedresearch. . '

1. Patent regulations relating to research ,in the health sciences will followessentially the same principles as those in other fields.

2. Disposal of patentable inventions should rest primarily with the granteeand his institution, especially when the patent policy of the institution advancespublic purposes.

3. The Government should retain royalty~free rights to the inventions for itsuses· in Government ,hospitals and facilities.

,.~. 'I'lle >Gqv~rnment, should make-certain, .thatcpatentable dnventlone.are.beingdevelopedbymeans Q:t:~,progress',repQrts!from the, grantee-and' the collaboratingcQ~p:~;ny:. >.~l;tr~h-inA:la;usE):s.should, be: prought i into;"effect~,in: case: of -improperdegetopment.. "" ".",' ,. "", ." .... ' .. "r ,"i\'C

:Q>;P~e~(;!nt;,~nd:,futu~e,a:ntitl;:ust,laws,,S;hoJ1ld .protect:,the:,-public-,·fl1,om,.excessivecost's. '. . ',::';'<'\"":" ",,;;i J:,'; <,'i!fi,.'"s

6~i'In.dllstry,s:AQJ.1ld,b,e ;as.sured"pf it$ Plgl1ts, in. advance .ofbiclogtcal testing.';7,::rr9pqsed, ;legis.latim:r, .shouldrunake., olear i:r;L),a:r;LY; -patentt .cegulationsn.that

ma;r~,etiIlg!rig~ts, .to. i.:p.dpl:!t;ry: will,;llOt:. bel encacaereq-wnentnduster-nes. bornet,h,~ :,C()~,t.i or ,r.e$e~r9h.; :'I!l;J,o::l~,;rightl?",.sho~nld"n.ot be: lost-because ra.pleee .of equip-me,nt,or"building.,pu1;9hase(l .•byF,e,deral fuilds"waJ:l,u~e:d.", .' ,'f .. ru t-: .., I"amenctosing herewitI:1; iIQ.Y'; ea,~:lier,~t~te:ment~,. ,cQnc~I"lling ,the~ problem.ut YouW~~1.fav8r .me [gl'eat~Y: ,~y, d,~E!'~usWng",.wYi Ietter .and; .the,.statements, wi,t4: members

o~,y~~r~~fef~W;6~rs~ ': .•...'0'" .•.,.jQS~fI!H~~~~~:AL~El\,'•• " ":,PrfJ1C,88P:r;. ?:harmaceu~ic.a.Z :ql~fJrni.8,try, ,{Past. Preside,&~,;,Pfrvis£Qn,oii¥ouo- ,

,~1!'a~, (J4f}n:tj8.~r:YI' ~~,~ri,i::(l-~:Ohen'Ai,cr;d S.9~fIt;y):-

'Enc16sur-es :;dated' 'trun~'"8,:"1962 .: l\farch i' (3;'; '196tr';"'Deceiliher" 23;'·' f964';' arid"FebruaI'Y'22;d.965.t if', ,',':.ii;' "\. '

/ i" 1'1 '" :t'" , . . .. ' . " . . . ,,'tit)',,: ,,'/j L' ;'})

""<:&N',:,OPINIONiREIiATrNG:TO USPH8 PATENT"Poticy" ;') "''-'",;\ ~i!·d;·'.i;.·.:,:,'; ;1; ,:"i' "Hj, ·',)i"

""!; ''';'~:,\'ril; i J'P'NE:8;,1962.\ i

INow~: that; the .patent: Policy' hae been 'spelled out-more' C,ieart,Y"bti tiie~ newpatentv.agreement, and 'ibla~ket--:pa,tent:agreein:erLts-:a~e':apparently,"n'ot!'beingprocessed between! unfversftres and:tlH~:o~ce''Of·the'8urg''edn:'General;'the'bv~allpollcy-fs decidedly .dfseouraging -to 'the: 'testing :by;'in:dust~'of ":pr,o'litIcts,"'lllfi4eeither' wholly or',mopartt'under- NIH, allspices:', ';~~en hefore'th,e;newl ,regillJiti'on

Twas put-Into ertect, industry-was wary'of testing'ai'professor's,.comPoundS.JNow.there'canbellf>,'dOubt'aboutindustr;v:'sattittlde>',i'i .. ' ",",':", \'?,l'i'" u: ,-:" ,

The' cnlyvreascna :why ;indust~, 'would 'sigii'tJi'e' n,eW·'agreemeiIts:are-,.:.;.'-,"L i;',:: ~(1) ',' as a.gesture 'to' acproressortn orderto --aJ).oW' hhn to rec~ive~re-sear'«;h

funds, but serious testing would probably no,~be tindertaltetf ,j " ",'! >";',,'(2r;as ,a means or finding" Ieads''whicht'they' could :indepeIidently':purs'ue­

in other words, an,evasion,of.the spirit of the:,lln~ealistic;regu.lattoi1s;'i-"'_:

Since serious' testlng',and',:evaluation",o'f:'NIH, ,stiJ?Ported· products ',lJY i:b4~strY"will 'cease: 'under,presellt ,policy,''the :tmive]'Sitr' ch~mist';must,l~(l~'els~Wh~J;'e"fq'rhelp, ,.There 'ar.e' three' 'atternatrves ,: '(1) ,pi"i-ya'te,' laboratortea wh~cl1,t'est'for'afee;' .'. (2) 'un~ve~sity, laborat'ories~ and' ~ (3)Oovernm~nt, ,laborat()ri,~;;" !In: 'eithercase; .an 'exp,3:nsion '()~''p'resent ,faCilities 'would he,: necessal'J";" "'For' the~followlng:l'easons~'Idoirot'belie~e the-expansion dN;~it;herwoul(fbe'wise: ' '

First, is the fact tl1at.lI!dustry Is already,set up to do ~a:pid, ,e~ci:en,tscre,e~fng.Industr,y!s life-dep'en#' upon' th,isfact. : Because o~' a~'llnd~rstan.da~lelaqli: ofIncentl__~e ·to'P:l:"ridu~~"new, di-ug.s;.· it 'is, r1Dlik~Iy:,thfit eithet;of':~e t'\V0' alternativeIRboratOri:esS~gg~s,te~:w?~<'l evereq'q~l industry's po~entHi:l~, " .-- ,

,!esting~s,anextreinely expensive o~ratioil.," .'l'h,e',co.st'.Of Isolation or"synthesisof, a "ll<fw~substance ,is"'oftell mtnor' when"cornpared to' its. blclogtcal 'evaluation.The ~eesof, a ,:private,,litb,oratory"wouid' thusbe.pr~l:iibitive'td'the,NI:a~a:t;Ltee.

I :hiLyeal,ready'ha4 ·experience'With. t~sting; .in', severlll uniVrrsity ,Ph,a'rmac6IogyIaboratcrles. In'illosf 'cases, results" siIllpli, ~re' ,ll<?t ,',fO'li'thCo:ini:b.:g~veri' aft~rsever~,:ve,ars., ,Th~ s,f:\me is true of governmentaPlaboratories withthe-:exceptlonofthe'cr~sh:progralIl:,pfCONSO. I sh,()uld'~,e. gla,4-,to"docu,m~;utthe:se c~es inconfidence; ." , l' ' ','" ,,' .' ,

,+'her~, ~,ema4ts the'broader question of whether or not it is gooo'fo-r.-our uni"versitie:sand the National Institutes of Health to take,on the l)usille~s: ?fscreen­ing. I am opposed" to it." .Applied,. devel()pIllent3,l,work'sh?~d llot betJ:ie pro:vinceof th~ National Institutes and' the universities....If -it were, th~' next step 'WOUldb'e :the"ni'anufacture'of< drugs" by;'Government,'and' 'universities."'; Do,:we,-want toindnstrlalize'G'overnmentand university laboratories'? .' ",' J (;

The wishes:; 'and' 'objectives of Congr~s' who i appropriate' NIH: funds:, and:thepeople' :whopay· taxes.shQuld' be' considered.' ~ ;:First', II .believ:e,Congress" and, thepeople are primarily concerned with providing effective, medication' at reasonablecost. Second, I believe that Congress and the people do not want-"Governmentor .. the'univer~~ties;tO,;pe:~form .func~iOl1S":W:hll.":h; are:w-ost.·~ffici~t,ly' dO,n~,;RY' in­

:dustry... ;Even .. prior 'tq, the. new' pateJ,lt ~greE;rp,e:Ilt f()l,"m,. p;ldust!'Y:,was.;vy.a~:'?,fexpendlng funds for testing potent.ial,dr'lIgS;w:llose,map-.ufacture_~t'heyeoliid,potcontrol. Thus, tOl" years the fUll mandate of Oongressand the people who have

MARCH 6, 1963.

J..H. BmOEiHAJLTER,Ohem'istry, '. the University of Mlohiu'!'n" .A'fH~Professor, Phar'maceutioal

At:bOT,Mfph.

,l\I'r~'HER8~_ihciLF:Cid:imER,Invent'fP~s goordinato-r, U.R e« buo :l!ea:.lth Service, 1fas-hin-gton,. o. o.

, DEAR MR. OLESNEll:. J3'irstj.-Ietme say that. your; vielt to 'Anu ·Al'borafford~dmemuch satisfaction. Your recepttve.and objective attitude. toward thepr()plemsarising rrom-tbe present patent agreement form was-most. eneouraging.c In-accordwith: zour suggestion, I am outliningsoma .of the speclflc reasonswhy I hope. theprovretonscan be altered.

appropriated' increasingly'.' large 'sums 'forpubli'c health' -researcn.haanotbeencarried out. "It is~ as-if.a: bridge, were buflt exeept- for one seetio-n .ficross ;~',,1idertver.. Such no bridge; despite the, cost; Isworthless. Does Oongress want-sucha bridge? The missing section, In the case a,t hand, is, proper evajuatfon-orcompounds. -made-urrder Government 'sponsorship; The new; patent form"makesthe problem all the more acute.

Government.vas a nonprofit institution! is Hghtly a-paternallsttcone. ,Thus.what: does it matter' if industry is occasionally subsidized to-the -Ilmited extentof -the cost of -Inttlal preparatronor a chemical so long as-a valuable new medica­ment is provided? Actually, industry's research.costsare Increaelng; while trulynovel drugs are decreasing.fn number, A small assist to industry-In thla'caee Isperhaps even.more realistic than .a subsidy to agriculture.

Actually," the' portion" of'PHS,expenditures:'designed,to lead' directly:, 'to newdrugs is relatively small. Thus, dollarwise a cancellation of','thl:'pateht policywould constitlltea relattvelzmtnor gttt to universities and-industry.

There is' a' moralquestion' concerning the acquisition of. patentsby the Govern­ment when .the inventor or- c()inve-ntor· is-aJi employee of a',uniYl1r,sity or In­stitute whose pay comes entirely 'or largely'from the'univel"sitYorinstitute.In ,many; cases, the research: problem. was conceived before .application. for agrant or contract was made, or the inventive idea comes' in ,th,e:c~s,eofca,uni~

versity from a professor whose pay comes: entirely or largely iroDl:his universdtv,The Government; doesnot purchase an inventor's brains, and: background when

it pays for work done by a student technician or assistant. The great eontrdbu­ticn-made. by Government in medicinal chemistry is in granting money whichpays ror new basic chemistry and for the education' of a-atudentwhtle he makespr()mi~~:t;l.g new .compounds .usuattv.at the suggestion .of chis professor•. Supposea .'prof~~or: eoncesses.ora. superionmethod ;for the: production of· a .. drug; He

__h[lppeA~Jp-,.assign -theproblem J();;,l.:.p:Ublic Health-research assistant (he might.just;as:;~"ell)lav;e,:been a Monsant.Q feIIO'",),. Under, presentand proposed. prae­.-t~ce; lIi~~;uiiiyer$ity.c(}uldIl()t" q91i~rol the.Invention.. iJ!ea,rsof exjerience, hardwork, and study have enabled tbe.proreseoe to-plan-researctr.. The Government,of course".did·not,paSl\~orhi$' education.and does: not ;pay .hls .salary. ,1 belie-ve.therefore, .. thflt tA.e.un~v,e~ity:·and:the, professor-should -have mucbvotce in thedtsposal crsueh tnventtons.' '. :", < ." .':, """.:,.

IIe~~, ,R;L','" my, opintonscregardlng..propel; .patent ,p(}licy'invoIYing"G,overnmentgrants,ll,nd,c'olltraots;"', .: .':., ": ';., .,.. : r .. ',.:

~:.fe:el a, unfversitY,i indus~ry,or,otlIeri·institution;,shollld'be allowed. to .makedecisi9:n~~~ga:rding,patentable .inv.entionli'!::deyeloped, under. grants .and: contracts.Institutions should beenccuraged.bv the Surgeon General's Office to sign letteragreements,:rf?lating.t() d,ispQsitiop, of patents. The grantee institution should, beallowedtoorrer nonexclusive ucenses to .industry. .In.case.a partdcular companvdeveloped the inventlon.. it .should ,.~hfl.ve, a .15~ye[l1" ,.,-exclusiye"marketlng. of ... anyproslucts~, -."",,_ ..... ,'. '.' .: '.' . ..

It, is assumed thllt a grantor.~o:ntract is .let by: theG-0ve.rmn,egt,}tecause' tmpor-.tant. research. or .. development is.not~eing carr-ledout ':I:'h~"q2-.yelmment,cannotallow au. area of- research. i;n:LPQr~anl~:to' the.safety .or .. health.ofIts people-ito beneglec~ed.. TlleGo-vernnient. is' a. 'nonprofit, .paternal. orgamsajton. Its-policiesshould faYOr,OIrganiaations which areastute enough to employ 'sc~entistS.a,ndengl­neera.who. can solve important problems..,.. Auniversity_or iIJ,stit~te shouldagreeto a pplicy of nonexclusive .Ilcenslng, .except when a parttcular company did thedevelopmeutalwork., ..'I'hen; tlla.t flrm-shouidbe granted exclusive marketing ofany,pr()dnct.:d;eyeloped.for at~eas,~;j years; ..

VVI

Tb,e,rlia80ns', center around the fact" .under present,regula:tioliS,,'of,.'indusfry'sllnwilnllgnes.sto,engageJnthe serious teetfngtorncompounds: developed 'underPHS ausnlces. and.the ~IH grantee's need rorpharmaeologtcal. testing: bydndus­try. Based upon my experience, and familiarity withindustry;testing·labora,to­rtes, .untveretnes, and Government, 1.believe that the.facfittiea of: industry ratherthan those: of the other organizations will bring most,rapidlY,:most-efJiciently,most economteally., andmoet sarelv-c-whlch is to say to.rthe greatest interest ofthe pnblic~m~icin.31 .agents which are, conceived in theuntvecstttes. Industry'sexistencedependsllpontheefficient conduct or.ecreentneand dt also has thefacilities .ln a single coordinatedorganizatio;n to see -that a drug goes.over fhe101lg series of hurd~e§'.Withou.,t, patent provisions which. will enable industry toparticipate in the development of a drug,' I cannot vteuaneenow au NIH-spon­sored (irug)vill reach the people, Lshall.Illustrate the difficulty encountered inourJaboratorv, under present regulations, 0:1,'; getting, over the first hurdle afterayntheeis-c-that.hurdlebetng pharmacologtcal-testing.. , ",,' ,.',",,' "'", '

case 1.-In 1957, we CUlminated 12 years' effortfn. the laboratory by the synthe­sis of a parttcularcompound to be .screened, in a, dlseaae.whdch affltcta.about IbU­lion persons In- the; world. ',: trwn.emtnent-autnortties in the field -suggested thatonly a .partfcular G9verl1111el1~.Iaboratoey could do, the .screentng; and they: .ex­pressed great Interest.In the-results.. .On.March 29;:.1957, I .wrote to. the Govern­ment labprll,tory. "I havewi-lttena totalof seven.lettgrg,·and:held,pri-yate conver­satlons .wtth .that lap9':r.atory In. an.attempt to obtafn.fhe test-which is .avatlable,but I have failed to secure the.evaluatron that the two authorities agree should becai":ried'O}lt~", 'Dhe.sample Is-stdllbelng he!d,:bythe Government tester.

ar)'.8,e:i2~~OnJup:e:26,J:j)6,2, we submrtted a compound- for pharmacological studypy·lt' G"o,vernme;nt;facil,.j.ty whose, head has expressed.In.prtnt.and oranv.to.me. thatthere i~ .great. need fou.such ,agents as we: have been- pr/?pl!ring:"" Three additionalcompoundswere submitted, thl;'\ Iaston Novembe.l'dV .. ;1!}{}2. , Acknowledgment. ofreceipt :has been.made ,9~ ,Duly:the. 1irst;· ~ui:dJ,lQ.pharmacologlcal .resultahave-beensenttous, .-;.~ :knpw th:at-,S<:r~,j,gcurl,".lWtlY,J:W.jng'J~a-rri~__-out, ·:be~.a;use,~.,yis!teCl

th.elab:ox;atory."," '. ,,: ,',.,,' .,,' . .....• ' :': ':"'.' ....••. ,:.. ,... ,.ceee.3.~A letter; and .swo long distance telephone calls, at the, expense of: my

ullive.rsity were m~ci~,ir'):.'a.ttemptingto-reachthe -head or.a .Government laboratorywhich .Ia. concerned wtth a disease ,that afflicts-over 20(),million:persOIl~in, theworld. I .wtshed-to _-relay Informatfonvand. ,to,:S,eek rto ., tnterestvthat. laborJ;ltol'·Yin the biological evaluation 'of'a nontoxic' '.gubstance",which,h-as'sh-own,greatpromise in .animals. .... 'N0, response .hlls'yetJpeeu"T~eived,JroIlltl;lt:~.:director. nl-.though.theini~:iil-l~Ontaet wasn~axle:{}nJannaryll.,,: "" .. '

(fase, .. 4.:::-,~eyerlll-0Q.JIlpounds. were.submitted ahQ!~lt, :2,y~a,rsago -to.uorores­SOl'. in a department ,of;ipllarmll'eolqgy' of 'a. large, univers~tj';''r:hesubstances. ofpotential in ca~io'vaseular'dfsease, .were 's~bmitted:·,uponthe-.,reqlles.to-fthe.pro­

fessor. . Desplte.our. inqw:ri~s.C-O,:J;lce:rningres-ultsof.;testing,,, no response haJ3 .beenrecetved.. ";'.". ::" .' :. ' '::'"

Case 5.-Four compounds ,Yererecently'synthe13ized~nour·labol'ntoryunder

NIH sponsorship j they are identified as GS-82 x 8, GS-82 x 9, GS--:82,x15:andGS-82 x 18. ,More. compounds 'should follow soon. 'I'he substances offer promisein cardlovascularcdlsease. Several of . the intermediates are "potential antt­convulrsants.', j:do,:notlmoW'\"~heretoturnrfor prompt, reliable testing.

Caee 6.----------"Student ER 'has 'recently found how to .synthesize types of com­poundswhich, offer promise in cardiovascular disease. He, as well a'S studentGS,areeoncerned about where we can Obtain pharmacological testing of theircompoundsvs. .... :.", .,.:,' ,./"',:;'.";.:,",' '" j

Oa8e7.~Eight compounds identified. a'SRR-33, 37, 38, 89 and 42; DB-54 x21 and '24; andIS~71 x',86; .are de>'3ired;by cDIIl,pany X as potential 'drugs.However their. director of research .is -concerned about their right to" marketo;ne,of tbem..should it snow promtse.: 'This: ds a-factual. sttuatfon; even thoughnone ofthe,-colIlpOunds. was synthesised under NIH auspices. The company isco:ilc~rl1~ lest-It -might; later be shown that some NIH money ,was expended in­directly'.during ,t.ll~, :synthesi~.We.,stil~hOldt~e, compound-s, and. cannot ,pub­Ilsh ,manusc.l'iptsuntil 'bipl6g:icaf data a'~e a vallable.! :

1·· realize that .dn- this -tetterrto yOU.. it· ts- unnecessary ,to::use arguemen tsgrowin~ ,out:~f. ,~h~., qiti:r;t.~ .of, ~ndiyidnal ~x~'lli:ples. (}f our. ~robl~~~. -lam'surefrom our recent lou'g' diseussi:ops thatw~.-agree,on.·:~he': d'lffieultles. . .. Nevert'he­''1~s'J'shail now· ,take' the liher't:f'of'genera:lizill'g: -iriorder'to dra-w·umore' com­

plete picture incase my letter is examined by a third party ,wh() may be lessfamiliar with the·implicati'Oll's.

VI'V UVV .l!l,[l,.J.'11Vl:.I!U'I··.l· ..' r!1·.l'.EJ.l'l "J:.'" rV.lu..... .l

purchased Tinder. a -Government grant are.not.used by, an industrially' sponsoredstudent~. (Indus~ry has shown -no-partdeular corieern-over.ethe-reversed .sltua­tdon. . Ironically,~m0s-t tridustrfal- fellowships in conatrast to governmental onesInvolve-nopa.tent .a~r.eenient';the:primar:y'purpose·isthe support, of students insclence.) 'Indeed one of 'my'most.- time-consumingand:'harassingduties is,keeping separate ideas, etudents.dsupplleerund. funds·based.upon.·,.spOnsorship;'I'he natural demands upona-research professor are so great that he should notbe subject to such needless harassment. '. ,'.,', ''-',;' .. :,::: I,:: ,." " .. '

Defenders of the present regulations chall~ngethos~.'?;f'·,1.1§·;W~9'W,oul(t:change

them to offer statistical data in support of-our claims. In replY,1 use a famousquotatdon ; "I'here-are three kinds of lfars.: liars, damn liars, and statistics."

How can one obtain statistical facts concerning suen n problem as we arefacing? 'Suppose there. were •. a-governmental ; edict "requiriIlg-tllat-th~:g.£ef~~tllall children be taken from their parentaat.btrth and placed in homes for childrenwhere they would uniformly receive the. best possible educ3:-tion and discipline.A.f,ter all.. it is well 'knowll'.that"many;,childrell:donotreceive: such. advantagesat home; How could 'one provide meantugtul .statisttealsevldence. .agulnat: suchan edict? ' , ,

The ,pres~ntpatent regulationswere made. irian .arbttrarv 'way....''IfstatdsticalInformation was .employed, in 'revtston of: the .patent regulations.vdtvpertatnedto. only,u portton of the present problem. 'Present as well' 'as past patenttpoldclesof, the U.Si Publlc' Health.: Service. failed: to .conslder. the 'necessity fcrcollabora-,tion between scientists,in universities and industry.. Commonsense' 'tells' US'that 'regulations which "restrtct-communtcauon .between medical sctennets-arepotentially bad ,forthe':progress·o~-sclencer.the. economy;' and the health: oi, the~~ati(jri>., . .. . . _. ,,',.' .. ,'. . ,_

Ari.acncletn 'Science .(JUly,24;~1964)'describes the tmportancetof collabora­tlon betwee~:,th~twogrOups:o-f;SCielitistsl 'I'he.fact that-foreign rionindustriall'esea~h'ersoutpl,"oducetftheirAril'ericau'coUuterpartsbi more: than-S: to 1 'can.beattrtbutedatleaet nartlvtr not enurely.to the fact that thegovernmental.supportIn Amertcajias been ve~r gre~t. and, fOI many years, has, been'largelY,::self~

defeating:' owiIlgto .the re.quirenl:~ti.tof assdgnmEmt:' of: patents to- the, SurgeonGeneral.',. Thus~ a largep:ote:g.ttal,::'of ,produdivity:'has"beerr:'irimically .dissipatedby' .Government. S~ientists~rom'- other' countries stand in:disbelief~beni.they'learno,f'ourrestrictions>" ". .'" : .. ">,, .,:'-".:,'"'' .'" .:«:

Asa member' of'-'an ad -hoc .'committee "on:-pateut matters» Of the '.'M~dicinal'Chemistry Study Sectionor NIH,,' I have'tsuggested-that- -our.rccmmtttee-trv .toobtain certain facts which might be llleanillgful. . But I cannot be too hopefulbecause the question is onednvolvtngtprtnciples of economics and philosophyof Government rather: th,an~t,~,tis~~c.s.... • '" '.". .: ,.' ...',: " ,

Supporters or present. patep.t regulaticns describe. ,alternate .' plans as :a.,gIve~

away otpublic 'funds, to. indBs~'ry. A.ct~ally, .. the reglll{it~P:n_s_ 'are,.worse ·t~arl 'agiveawaytoindustry. ' ",'., . ' . ":,',' . ...', ..

Commonsense tells us ~h3,t, po.licy, which assigns patent rights tothe FederalGovernment will have thegeneral .effect of'p,r~ve:ptiI;1g, development of potentiallyvaluable drugs. IU(I;lls,trY,ha:s .. ,)~lfl,.de.,~ts.'< .po'~itjOr,l ... stll,ti,st,ically.· clear at .1eas~,in this' regard. Based upon basic principles o!;,~~qll()mJ"",t,'tl,€!ir.votehas,.p~en,

almost unanimously opposed to .testlng ,GoyeruDlellt'l'lpon~ol~e(:l'products. '. Underour system of-free e,nte,rpr,is~,· in.dustry-cannQ;t,:iffordtopqu:r, time, and moneyinto developments which Itcannot control for at least. u r-easonable period.', '

Commonsense tella ua.that policy which as~d~Ilspat~nt ri~hts .to the·.G()ve.-rn­ment will tend to dis-courage the application for patents. "Co-mmolli3ellse also 'tellsus that a policy Whidl~itl1er assigns patentrightsto .the Government or tendsto discourage patents is a policy which gives away not only governmental fundsbut the .. tarenrecruntversttv scteunsts to,sQ,c!ali.stic~ndcommunfstic countrfeewhlch.uwn. their Industrlea-and, therefore.ineed.cnot obey, .~:q.~ rules of, privateenterprise. .Admittedly" these •sal1le -eountrtes .already .connseate Industrv'spatented inventions,but the policy of. the B'ederalGovemment should not, be theironic one of making:fl,lrthercontributions: to soctaltstdc-eountrles while aimul­taneously depriving: its-illdustry. of •the right, to- develop. peomtaingnew agents.

In other words,eith,er'_patentassignment to Government or the:failul',etopatent, can a-easonebly be' said to have the effect of encouraging socialism andcommunism abroadat-the.expense, of Americau,.indug,try,.-: __'Phepolfcy.woukd alsotend to encourage socialism at home; for, if Governmentcontlnuesto expand itssupport of research under present patent policy, industry will become increas­ingly a contractor for Govern.ment and essenti-ally will be owned by Govern-

":'/'-',"!i

holds: -the- fundamentafmght to "decide -how hiE! io.~aE!; -will; be, dev€lloped.; The;Goverrurrent.wiolates -elementah.Indlvtdualihuman .rtghts. .and "qigIlity ; if ,~t, !-i9n,~,

nscates. arpnofesscr'a 'knowledge and .expertence .m. e.':X:,<:4!lJ}ge,·, fQr :fiIlap.ci~l sup­port, fori .research.usstetants.. 'suppltes and.equlpment.. S,uch; j::; tnecasebecauaeof the -patent.aegulatlons. "For:ithe".sake, ot_freedom 'oof the scientist and the.hearth', of eh e cttfzen,tthe.regalatio ns,should jb.e\ehanged, '

, """ "'I;.;;:c';' ""'(1,[')'1 "';J'OSEPU'i!I} BunOKHALTER,f!rofe~8orPh,arm.aqeutica.l ,Ohe'"'18tr,v, (iPa.st,-:President,1-Division of';Me,dic"

""",! !1lrt-la: Ohe'ljYist'ry;'A1Jlerica-nDh'emical Society ):;";'''1 i;

'L-J:SUGGE.S~EP- '~~~NDMEN;T,S

T'HE<NEED :ij:oO:CHANdE:PKTENT' P'OLIOY 'RELATING',TO' MEDICAV RESEAROH, :SPONSORED:,'i"] .: j rt-. ';,;" ;.:, ':,:, ,.;':; :;":,-,;c'\';;'llY{ :QOvERN:MENT,j':V"l

"Present-patent. POliCY"~On1;rOli~g;::~,~~e~f;ial,new<,meC"iici'~~s':iniiia,ted 91', .deYe,l~'oped:" under» the" ausnlces-or.sthe ;Fed~r,al:O'Qyernment assiene. all .rlghts to ,,thee-,Government. Three different bills introduced before Congress a year ago:and.,presumably, to be ralntroducedrthls year" ae presentlz: worded, .would.enaetIntolaw; .the-preaent .-praetdce regarding: inventionsnrelating.ito, __public hea~th.·,:, ..;

Tlie'bills,arethe, following :.-Sri-1290 (April ,9, 19.6,3,)',: Senator.McQ~elJall';! ,S.1433" (May ·1,,1963) "Senator "Long; rand; S.,. ,623.,. (MaY"28,, JP63);, SenatorSaltonstal1;·.>;c-,.->",':"". !,-',r.':l;r ii;!:", >:'1;::"'" ;:ilf:;'!. ,.,':;": ",',"" ::"1 u'.;'o'Based .upon my: expenlence.-In industry, and .. unwerstttesend as. a •• consultant

to-xatronai Institutes; Qf:,Health,,r .eontendedrthatrthe. present. patent ,practice.and that which is proposed by the three bills, while 'well meaning; f~,ils:.to­recognize-the past fruitful collaboration between ~ndllstr;y.and ;UI!-ivgrsiti.e~.whlehhas'.'produced approximately half .of thednugs. being: .used jn:th~.world ,today,~"'r'be-pottcteaere. :unsatisf~ctory,tovirtuaJly;· an. the, pharmaceutical :C9mp~nies,andoto. those scie~tist(3':in..unive~~ities: ""hose.:. re~e~:rch;,is 1J;lJ,Ost ;J.ijrely:tp.-;l~,a,q.i topatentable drugs..., ",.; '<'<';',:/'1.:':"'1."., ':"" ";'.i'.:~,>,:,- "' .• : c.',":';",: ,,'

:'1 -wlsh first to suggest amendments-to the.btlla.whlch would pr:QInote})ls.~eal;l

of··de(3'-troy collaborationsbetween -the.isclentists :pf,;indu(3'-tr,y .and, .untverslties.a:p.d',; therefore,' .provlde ;better:. pr:ot,ectio:g.. ,;t()., the. health" and ecouomy .of...the:Nation. Afterward, arguments will be presented in support,of"the ·~oIlt.ent~9-Atear-present. .regulationa. and, fhe.pnoposed -Iaws..are ,potgn,tl~llY l!::t,rn~:ful 'riltp.erthan-helpfulito i the; cause-or i-llqb.li~,:~ealtlJ: ~n,d; W~l~ar~.;;

1,., ,The form. of thepres:ent, 3,~reeme!lt" w~,~(;h"in,dustri:,;wi~i',no~:sign,···.sholiidbe a'm.en4~,d, sq that p,atell:~rig~tS to ~,(lustrl"'s ow;ri)nv.~p.tibns,.cn,nh()tb,e jeopa,rd~ized' ''b'y testing" coriiL)Ounds" for ':University' sciEmtists' perfo~:tnilig, ,9:(),Yep:i:rp,e~tws:r:lO,n$Q':red,res,~arch.<.:-, "":""",, .. "',"" ',,' , ",'--0 .'" • ".':"';,",-. ,:,,',', .,

~.. ,The prillciple;t,h.~t; m,qustn.~~f{ ,r~g;hjts:as 'a.r~~~lt,i;>f ,~pnabqratilJ~shouldbe :1,"€1cb~nh:;ed. bY,·ctll. };tg,W~rn:eI)-~ JRJ~4v~~c~ \<?f:: ~esti.~g ·.~A'd: ,qe,v,elopm-;~nt and, ;Il9,ta,f.t.eri\.y~,rd .... The,cQllab.or,ating. ti,rm' shq-:q.Jo.' receive ap~riQd"Qf' mar:keting.-.-ex­cll1s"lv~h< '.]iW'e,yea;i-s.,i~'S.1iggestect :-".", I;'" c,: '; ,,".' '; ',',i"!", I:~;,"',;," ,".;' , .': i;, :,'

3.:, r;rhe.Gove11llU~~t, ~ 'Slloul,<:l,· ailow ,a •universIty to' ,~oJd,!·iwtentand,. proper,~1;rights' w-hile '. g~all.tin~"t1?-e.' ,Go've:r:Q.:rp,ent,' ,royal~Y~+r:ee i ~fghts:': ,The" universitysho.ulq. ,hin~e a, st!und: pate:ut'polic:y~h k:e~piug ,with"lle' ';p:U;1;ilic, vyelfa're, allowingot,h:erfirmsto market'.adrugit the end Of:~he,pedod'o.fexcllisivity..".

", ! j ",',', !'. '..'",;,,,,--,";,,:,,. ';J':) , .', i ,','); ,": ',in ,i,','; ,;,'" ,; '" ,. ','Jl . ,'" ",--, '" '-I'<i -', --',!

/,';::1 '-"f:; ,d -'-;'i!:<:,' ,., :';l''': __ "''',''.-", ... ,.-. ',i,', ,i--," , " ",j'."::{i I,,' .S':l',A~E)~I,Ei~:rS,~~ _SU7'tOR;r . OF :,P ROP OSEtl , AM~J'f,~MENTS

T~e' :i?~st' iII1ll1'ed~ate d,iffi:UJt:i.f caused'.b:ythe' ~pres~i:t,ti"pr(blie'.'He,alth, Servicepat,eIit']J~~icy '"is.,' t~at" gI'ant~es"'cal1Ilbt, -' obtain, 'adequate':'biologic::tl testing'" ofpro~uc,ts'?f tJ;1eir,r'esea~cJi.,., ,Ind]Jstrl.Whi~J?:,has. superi'~r. facilitie?: ~nd ·p~rsonnelfbi" sci·eelliri.g' cannot',' afford",td:exP'e':ti(l)'.fun~s, 'Without, ,:advance': assurance',' of'mal'k,eting privile'ge~;'aF,ie"a:sti.for il'liIllited ;:Period·"0t,-time>.' i,',' ,,',i: ,;'j'

The ',lqgIcal ,reslilt of: a!'1ack,:0£' testing ~r ithe ,inadequate: testing •• of potential'drugs: js,:th~t'they: wiRnot"oe"made'available,to the;sic~'.,~", "', 'r:; '~'sec?nd, diffi,cultY.facin~ tlle :Uliiversity',gralltee~ is' ,the: continued,' and 'har,row~

ing-experience' 'of' keeplng'·i·ecords: in ,IIiaking certain<that iequipment' and·supplies'" r: ",- '" ,. -- '-- -- ."",'--, --... ",,,) [; , '" ': i --' ' , , ' ! (( '~I,,';"'" " , .

"Ji·' HJBuRbKH:AL'rER~;;Professor;:PharrnaoeutidaZ Ohemistvy;'"

':'1 . ,,' 'ifDECEM:BER'23;·1964;'

j' ',1: feel: that .the ifiriltA:our 'cases ,deinoilstrajj~'cl~ai'l"$"'the,l~c!i"of":foll6wWr~ughwhich, is }Hkely; to' becewldenb 'in'anstrtumons "where' "basic,;:'~e'search/X:.iillier~thanbiologtcalxscreening- .Is'ethe"pl'ihci,pal ;::g611~/'}Ailso;';:I; re~~" ba~'1r,' :to'-:parag'ruph,'::2of thisletter'iI;l!refer~~ce;rothe efficieIlcy.;of, ip.du'stry~n'sc~.'-eEming:,;.i ;','."'/'.",i, ,:-,,',";r",., 'I'he "an-swer, to". the! problem, i:q,mY'opihion·, 'does' ,not' lie')if th;e 'es~ahlishnient

.of .screentnalaborato,rie~~·in ,'Gove#lm~nt ," :and'.').I'idYeJ.'1~itY '.la:ljor~'totfes>' ,A!pj)li~d,developmentali.work: <s.hould' 'not -b"ecr>lhe' R. prinCiPlil" objective i .OJ-.,th'i( NatiOnal'Institutes of, Health: ':a'n~: th~ univer~ities,-.. Not, "do-'r f~e~ '.tlla,t;t-ll'e,'an·s-w~r "li~sin having particular; -tests "carrled"out", under ;c6n~ract"1VW~'~I)dv'ate',ser~eIifll,gIaboratories;: In 't~e, first plaeel ,tl;1i's 'pia1f"-'entaHs,"~) ~ip:ge' ,e:i;:pen'dt~ui·,e. f)'f.' fUrid,swhich" the grantee: ,or' :'tJhe"N1IH~'(t:e'.; :tli'e_::tax.pa~er) ,ean.' ·~n' iaffor4,' to :l?~Y'Se~ondlY'. Isuch,: testi4g:: does not 'provide ':for' prompt,:IC6ord,inatedfoUow~hr'011gh

.at: each, of·,the succeeding' 'hurdles,'whichLlie, Iihead'in"tir~~'·d.eyeio:pm~nt:::·0111yindustry 'has' the 'necessary"mitehii:rerY;,"b:ut-'pres'e:,nt regulations i5i"Q.hibit,serl6hstesting and developmenti)y·,lindu~tI'Y; 'which ;conterid,s·;.th~-t'·'it<fc'~nnot"affol~d"to~teoml?ounds!they'dl~notnia,rket-:' . ;'L'/'.' " L'}L":,,,,-'.',',',' , ."

,",While', every' .snvesttgator- w{)uld" like!ito"see -hfs ,prot1TI~ts-iii''u~e~:bY:'tll~'pub­'lie,' aeouanv-a morecacutevprobtem i :,results:'4irectlY 'f-romr ~he'lack- :of.'pJ!o~:pt,reliable.oandcextensdve''Pl1a~maC'Ologicat'screening" 'sl1cpe "as!. only' 'iiidUSfu:Y"','~anprovlde.'... It' fcC!neerns :proln.pb,pub1i-cati.6n,:of ';rMult.s: ;! 'MaIl,uiCript~:,Wb1Ch,de­scribe: biologically intere,sting Icompounds 'are 'CDn~siaeted' ,t(j" be.:i~coJI~plet,evrhenat! least'a 'summary.df.phar;rila-cological''I',esult~Ois':not 'Included in'the,' m~nuscript.

. Cases- l, "4,': and' 7," cited "in this: lett~r;: descr-lbe't'a 'situation;'-tVhich ' lliis:\ pre~vented the. puoucataon. ,·{jf.~ thr~"6r<' ~uri Itl~Iil]:SCri,pt.s, 'fro]ll"'ollr' ll;llbbrat"O~y: :;. Ishall be' :glad' to-furntsh'.:confi~a:tio~·o.f' ,~l1~.s' 'met, ,', .('~d'lnittedly;caae,i-ilivDtveSa,tes~, 'Yhich only;-theGoverument cen'atpresent 'carry out~ ;,hn-tWdoes'illjI~tr,a,~ethe' .beoad problem of:, b:H~;bility ·to,'publish· :because: 'of a!lac~ ?f, ibi-()logical d{ita:. ').Case,2 .demonstrates-etre' ina'?iIityof' a::. ~tudt;nt t\:" iIlcI-ud,e 'ph~lrinacolog:H:a'l1 ,'d'~ta'ill' his -theats-und," Iater.: In. a"jop-~~al :in:an'u?crlpt,., ":More' :il1lpo'r~p.t, '·llis- tra,in.'ing in medicinal ehenrlstry-has been'greatly curtanedtrecause 'chelllicEl;I:ibiOltl%'icalcorrelations are,impossihle.Cases 5 flnd6 illustrate ,the dile~ma"of~~y,,'st\i­dents ip.'.regard':to. c~rrents~u:dies;·' ,Not only,;do: we' need' testsfor,fri,ture,'pub­Ilcatdon -but for .'gujdia:n:~'.in',:fUtu~~~'syntheses;.,~hus~·,p.N,mp't· -testlhg can l4di­:~·3.;te 'the'di~ect',or,friture sYllthesis; 'We' are',overY i'eluCtarit;~'o, ?:sk' -~TH; :f?r' 'a'supplemental grant In' order' to -obtain. coiJ:tra'c.tual: ~estipg' fo:r 'r~as.oI}.S alreadygiven,.·" .... ".'.' ..•.. '. .:':',": .. " ...:'. """.':''''''... '.'.'''''' ..",

: A 'final 'consideration' is·that:-iIldustry'~is'alr~ady'~quipped:to'.te'~t'C9nl-l)~ui'ldSfor ~he main ()bj~tive .'of -the' grant'.;\ ','AJrso,"iridustry' ,con'du(:i.ts;·val.tl'ab;le'sC1;"~e:iL~ing of the 'same ,co-mp9undsdnotl:H~r'blologlcal arooS',"&(pnetimes' asIIlany" :a~ 10fo'20·additioual tests. "~' single;test 'ha-s:been"estiri1ated.':as,'cDsting, as i muchas '$l;O()O,hut'uhe'cost-~ ,the·grantee,and NIH nothing~ . , . '" ' .' ",'

Again,"'l"et',me express' 'the -pleasure;; and -- .g:atisfabti'o-D" Qfi,'spending; so.-:muc-htillle withyoutn Ann Arbor in the informal discussion of our problems., 'Yourobje.ctive'atttt'ude: is'grea;t1y'appreciated'.' I

"'BeSt wisheR' . , ' " <' "

Sincerely-yours;

STATl1lMENT TO. DR. GLENN" ULL~OT OF SMITH, KLINE &.FRENdH

.Em;tio~aliS~';conce;:~i~g':th~.sicka~lj::t~~:c'd~t: 9f,)di:~g~:!~£9Ui,d~rib.t:~'e:~iI~~e,dto:,distort the 'fact that:the, net: ,effept,of, pl;"esen~governw~:nt,al, patellt .po}ipy, f)~­

feats ·thepurpose .of. a grant: by,.,preventil;Lg, ;tl:1e,evalt1~tion: alld"de:Velop:tp,en:t:~of

compounds as;newdrllgs.., :Tl1E;l ob:vious,Pl'edic,~~ble;effec.torthe;patent:,l'egu~a­

tions :thus constitutes', a serious .detel;r,ent:tpc ,flsse:ntial ;col~a.b.ol'atio:n ,pet:W~~:p.. !l:tn~­.ver.sities',· industry; and: t:he Goyer,nmept(an,d',' t:qer~~or,€!,,:a ,bloW, ,to,!~h~ :tJ1.~ll~ehealth of the Nation. Scientists: Jrom,..~r,it~ip-;: .Frl1;rlc~; :G:~:t;~ri,I1-YnJa;p@, -,,~ndEgypt; ,have· ;·.stood ip.:~ :l:ll1aZelllent; whJ;!n:theY ,Je;~p;p-e.4 ,':9f;,9U;t';; pres,e,llt" :,patentprovisions. ..., ..,'J ,,'., .', <"'" ~ >c".,_ ."

:Aside from th.c necessity .of sucb,soJlab(lr::ttiop-ln,pUblicJ1~aJth" .t~e, regrilatio#s,onght to ,be.examined,in, the Jigh.~':9f,simp~~:1eg~l:a,n,d m,ora~' ~od,es,.: A" :J;.es~a~,<m'~r

.,

__,., __._,~,~~.,.~....~ ~ .. ~."",,"' """','" ,v.u~,-,.~,· U' '1;'.,'

ment.·, Such. social'changes :probably were not the intent of "Abraham 'Lincolnwhen be said that patents add the fuel of interest to the fire-of genius;

The question might .artse as to-why a professor, continues to supervise; 'andconduct research- under..·. Government- auspices when. he cannot 'cooperate- withindustry in. necessary development; Anunewec-ts-urovtded .In vthe-fact _thatGovernment -grants support students. Faculty' caIinote-asilyrefusesuch'supportonce it.,has been .establtshed.v Professors.and: studenta aee, Interestedfn -rnechan­isms of drug actton-enu iIi,·.contri'buting.-to;.knowledge'in· .thatvarea. Theycannot and, do not .wish. to. change these-interests, .whtch are directed .toward; thewelfare of mankind. They seek and need the competentusslstance of indust'ryfO,r confirmation of-their theories and development of their: products;

The question: arise-sas to why,'.certain phannaceuticalorganizations· seek tobring about a change: in ;PBS: patent -regujations. They, are euspectednf beingmotivated by the, prospect. 'of profit at Government's expense. 'I'hls suspicion is'indeed'. well fo-unded.' Industry .. must .make -a: profit to-survive; Butscientistsin Industry are also motivated by the wish to resume- rruttrul.collaborattonwtththeir academic colleagues' and by' their-desire.. to helpfaculty.·and··students,testtheir theories. Nevertheless, .virtually all pharmaceutieabvcompanies reeuse..to test-PBS-sponsored preparations·sineetheypresently: have-no advance-assur­anee that-their.' investment will: be' protected and stnce: they:' cannot' risk 'loeinglarge "investments .In thetn.own related research. Industry-regrets' to.Isee theinefficient expenditure of public funds' 'which results rrom.. presentcpclicy;HerelnIles its main concern.. lliduSti·y does.not need the compounds .or universi­ties to eurvlve; butwedn .theuniversttiea need: the testing tfacilttdes of industryinorde~'to. train ··.~u.r stud~llts'alld:toc:fulfill' our: obltgntionsvtn: Government-supported research; ,':""',.' -,. ';:' , '. '

A proper function of Government is,to:support 'education andrresearch .fn­neglected :'areas' when needed: .ror- .the .natlonal.. welfare.. Thus, "governmentalcooperation with indJristry,':~nables.Industry: 'to.thelp .the.ieconomy and. too Paytax-es ~o that. .Oovemment can. support-education.und : research' .' in -untversltres.Present'.patent regulationsvrelutfng -to-publtc health"Interrupt that cvele.owtthIndustry, 'ulliversities,::al1d. .the-publlcasIosers. :The 'Nation's antitrust: laws-aredesigned .to' protect thepubllc ·from abuseby industry'iu'allareas;':'Thatpatentregulations involving drugs should constitute a .special. case 'is amistaketcreatedthrough mi,sun<lerst~din~,.emotionalism, and political opportunism; The samebas-ic raws or.economtcsnnd' motivation control the search for new products,whether theybe food, armaments, safetydevices, or drugs.

JOSEPH·.B. BURCKHALT'ER,Protessor, Pharmaceutical Ohemistry,

-the University of .MicllJigan, AnnA1~bor, Mich.

CALIFORNIA RESEARCH CORP.,'·'·San'FrwnoJ;sdo,'.Oalit;;June 16,,-1965;,

Hon. JOHN L.McCLELLAN,Ohiiirman, Patents, Trademm'ks, and GO'P1JrightR'Subcommittee,Committee on,tlw.[tJ,diciarY,UB. $enafe,lVa?Mngton,I)..O;

DEAlt SENATOR,MtCLELLAN :-.'I'he.followlng.remarks express: 'my."views'and thoseof mycompanyon:legislationproposed by S;1809 that would, establish a uniformnational policyconcerningjnventions,made through research supported by publicfunds. '

9alifornfa Research Corp., a subsidiary;ofStandardOilCo~of.California;

is an organization engaged primarily·in·research.and.development, on products: orprocesses.related to petroleum. We ha ve in past years undertaken an appreciableamount of Government-sponsored research: but in relation to our total program,this has be~n a small fraction of our total effort-s-not exceeding 3 percent In any1 year; We are glad to undertake such contracts without profit to us wherewe ha ve a particular background of knowledge or experience that can be ofbeneflt Ina Government program; ,

In. my,oIlinion, K.l809.isa, good bill and will provide a: reasonable: solution to acomplex Issue, A comprelrenstvebtll of this type establtshlug baslc guidellnes.ofGovernment. patent poHey for inventions' resulting from Government research i<;generally consistent withthe late President Kennedy's statement 'of patent policyof Odoberl963, -wtth.whtch we werealsotn-agreerrient. We 'would be' opposed'to .leglslatlon, whether it be a uniform national patent policy' or included in

U:jl'i; UU V·tl1il1/1'llV.l.lliJ.'l'.l',..:.to'AT.lliJ.Y.l'·'· .t'UL.lU-l>·

,.. .,.... /,., .,. , ....' ··'c:."'.. :"-,·. '.', ..... '; ,,'.,;, ,This is the prepared statement of Anthony P. DeLio,-for: Ineluslcn-In.therecord..

in connectdon.wlth.bhe.hearlnga .. on; S.:789"S.:180g."aIld:S~ 1899. .:-,: ."',,;' •... ,, ,; ,,'Anthony: P.' Defzlo-is: the.ehatrman: of (the LeglslatlveCommlttee of. the Patent,

Trademark, and; ,Oopyright .. Sec#ollliof-the. .Oonnectlcut ·~al·:,Asso~:i'ati.o)l:Jl,s..well.as the, chalrman tofnthe. :LegislatiYe::-Committee .or, the. ;-Gonnec.ti~,ut,Patent·;·L3;W'Associ'ation, and. submits rthrastatementon behalf. Qf" bote. aesoelattons, not .to .mention various and' s~nd'l,"y;~nye.DctQr::s.~nd.corporate: P&tentQWA~rS;i

DELIO AND MONTGOMERY,, , COUNSELORS AT LAW,'New Ha.ven, Oonn., June 16, 1965.

Re Government patent policy and hearings with regard to S. 789, S. 1809,and S. 1899.

Senator: JOHN L;'-MoCLELLANji.H.~,:.1.')-

Ohciirman;" Senat&<."Judiciafy\ .. Su"bcommittee on Patents, Trademarks and Oopy~

Muhts, U.S. Senate Office Building, Wash-mgton, D.O.,(Attention of Mr. BtephenGc-Haaaerc)-'

8IR: In view of the he:a:~in;gs'heirig,C6ndu.eted,By 'Y6tir:~31ibd}mmittee"and':theImpontanee-of-suchnproposed-Ieglslationt touchlngnn .oovemmenc patent policy,I-- should like .to. submit to the, subcommtttee fori dncluelont In-the -hearlng-records ,the.iwlews of rthe.twrfter: as .chatnnen .or. .the .legfslatdve-commtttees,:of.poth 1the,Connecticut Bar Association (Patent, Trademark, and Copyright Becttonjc-and:the .connecttcut Patent 'Law Association,/

If, 'anyoelasiflcation- Or,'dsseusston..ta-deemed .necessarycor advlsable.;kind-ly:letme know. , ); ;.. ;::i

.;Tha.nk,you;; 'i;'"

·i.Resp·eetfuUy.•.submttted.;,

specific. cesearch.authorlzatforr .btlls.:that are 'contradictory'10 'thegufdelinesr setforth in PresidentKennedy's,statement.:," . ;)1.;.'; t" " i'

,Many: private .flrms .aueh-. as' ours-are. wilflng" to-utdlize their backgroundtofknowledge and: experience :on-Government-sponsored 'research! projects; withoutprofit. , Tbemost' rapid progress: In such-projects is: uaually'unade .when: companyscientdsts-asalgned to it 'are; 'able, to-draw rreelvou- the'(background .lmowledgethe.company' haaraecumulated over',many' rears orexjiertence.. -; The .Govemmentagency Is-thus able to.obtaln.themcst for-thetr.reaearch dOliar, .

'I'hedncentlve for' a 'com:paliYito;undertake'Government~spoiJ:sorediesear-eh willbe .dtmlnlshed- greatly;if:the;'·priee 'of: contributing .Its specialcecmpetence •. is .thethe l'equireD1ent ,·thatdt'must" give: .the' .Govemmentiexclualve- tdtleito ,:inv~n­

tlons'-and-: technleakInforma'tlorr. 'developed: and.. made --possible,; by': millions ofdollars .orprevrous company' investmerrt-tn facilities 'and :background; research.In: our __ .opinion;: G-overnment .agencies' -wlll find -dt: difflculb- to! obtain. contractsfor' research' .In many-cases If this requires -the. contractor to place 'du'·.jeopardy·hds.proprfetary position,: "u i ~i'

:·1 do not.Intend.tcdmply from the.-foreg-oing: that .bhe contractor, should.always 'aequlre tdtle.rtodnvenblone- •.... There are 'situations, where-It.Js: reason-able thatthe. Government -ahouldracqulre-tttle. ;It is:--essential.;t:hat Government..adminls-.trators be given;ifle:x;ibility"to meet-these -sttuattona wfthout-adoptlng the title:policy' .throughouta '8.,1809' recognizes'; this .and .we aredn .agreement-wtth-theprlnclples It.setafonth,' ':"",".' ',1[-:";\ ""i;

Certain .aepects-wbece-S, :1809"could be -iclartfled .haver. beeu-potntedrous-bv:witnesses at .the .recent.hearfnga Ibefore the' Sen-ate' Judtclarv.Suocommbttee, withmany of.'which .we.eoncur.t For. example.Ithe-seetlon.ron compulsory, llcenslng..section 3(b) (4), would be Improved, we believe, if the reference-to .vreaaon­able i rtermsoand conditions'! we::r;~i:amendedrto;include;"and at .a reasonableroyaltyy'-,;Howevet,,'" it .is :.not-. my. .purpoae at. this, .tdme to. review tbeseieug-.gestrons in, detan.. rather they; should' ,'be, Ieft to,', the: .conamttee todecide. on. thebasisor-the.varlous.recommendatdons made: by .Industry representactves.

Irbelleve .that •S'. ,1809' provtdea' a,;proper, balancing-of ;private and-publfc.In­terests. i;:It .wm.meet ;.' the.Govemroent. needs' .wjme.fumtshfng__ a reasonable, dn­centtve and: protection :of,pr,oprietary, .rights: toeompantes .. able. .to.make '.. a real.,contrlbution to Oovermnent.researcb .programs.

Sincerely, .

·......'V,.•.,~ ...~......., ....~ ... " ........ ~ ......'...,. ........ ; ....,v.................. 'U;.fV

Anthony :P.·'Defdo.ds a-former pa tenh, adviser, os, the Office. of .Navah Research,,U,S;", Navy;Department", end illQw;the.,· senior,;pal'tne+.in~ the: flrmr.of •DeLio ~

MontgomerY"NewHaven,:qonn; , 'iii;" :1"

Th~.Federal.Government's: patent ,policy" will: have. trar-reacbtng.. effects 'uponthe economy. of-this: country .In.the ·years .to .eome.eud.etiererore 'any,'legisiationtouching on this area- should.be-carefully conetruedrand eoneldered.vaecordfngty,the', Oongresa.muat .address. dtaelf. to: .therquestlou-or .me-Oovernment's patentpoltcywlth.well-ceasoned crttlelsm.and-understandlng.:-; . .:i~ ", ;,;:):' .: '." ;~~

As: one begins an: investigation tnto.uns-erear two. polfcies .are. evident>;' 'Onepolicy Ie-fhe so-called-tttle-pcltoy,' wherein the; Government: takes 'title rto allinventions. developed with or as.a'result~of,·the;expenditure, 'of:Government'f1lllds,while the' other' policy', is the-so-called license 'i policy,.:wherein:,the l .Govemmenttakes; a: ltcense under "the;' ;particular inventton, 'patent, ;or. patent i application,leaving title:1n' thecontractor.

BACKGROUND

One ~~tlie largest qo*e~me~t:C?'mPI~xesi~y~ived:i~';;;~se~r~,ha~~'d~y~i~~~~iitIa.the .Department of, :p~~€!~se,." i~ i'P::the,mst:~t:.follPW~d:,~ Fcen,se,.PDpcy, :'with. theGovernment taking title only in those cases wherecthe :l;l\a:t;l,9naL s.ec;t!-r~ty,.:~v,~s

a,.factor.. ,:.J!1ven. 1V~~D:the ,DeP.lH.~ment: 9,fpe~€;:p.se,di,d;, not ,t~e.,title ~ there .wassuffi~i.ent ,ni'achinel'yavailahle tqdelay ,,;~lLe grant .of a.patent,,to a, ,contract,or, ,S9ae to ostensibly '~JFU~.'( ,tb~;:p,a,~{)At'or,d~lf!.y,~t,s,g~ap.t:to:a; po:~~t',W~:~~e:,;o'p.ci~;gFa~~4,It had.no userulHre.. "'.' .. ',, " '''. ...... ,. ,.' ..... ' ,',,',. I

Perhaps .starting w;i;tb::,tli~,A,toifficJDnerg,y,.A,ct ;~f ,.t'~54" thel:e. was ,a.,.chari#~"inthinking in, conne~tio,D,',with, ,Goyernment~,sponsor~q: '" re,search,. and, de;ve1oprp.entprograDls". IJY: cer~ajn&t:~:v}sio.ns in this, ,aet;;;Viz,:~~ctiR:q.~,~1~~'''1,52;,an'4,,15.3, t,I;eGovernment would retain title 01" be vested wtth t1tle,Jo :aq l.I!:v:e:ntlons:,;us~flllm

the utlizatdon of..sp~~al,nuclea,r, ma,t.erial...or,a,tomtc:,'e,ner,gy in!,ali, atomic :~ea:pon.'l'he Space Act of )9,5,8 cQllt~ine4 p:t:Qy~si()~ si!¢la:r JO 'tb,e:' Atoin,ic Ene.rgy. Act;viz, sections 305 and 306, whereby. th,e,qoverlllllellt could ,ta)re title .to, ;"n'ven,tiollsdeveloped with:(;ove:i:n~ent,funds,.::, ,Tl;t'e, Spa:ce,Act di(l, cQn,ta,in some measure offlexibility as to ',tIle,'ve~n,g; fipil ,taki..ng .():C: fitle, at 'least as,in,terIJr,et~\i andadminist~redbytheS:p~feAgencyt'~<liL~e.,:.-":c'" : '".',. ,;:,: :.'"," -: ,:,',

Due to the legislat~'VeprograDls, oftllejaJe S.en~to,r~efat!~i,~p.,d,S:eI}.;;t,to,r Long,as regards Government patent policy, the Iate'Presldent Kennedy Issued a 'WhiteHouse policy statement in 1963 setti;ngfo;rth some guidelines for the Government'spolicy asto patents. Essentially, the p'olic;V statement specifies that the policy isestablished for an govemrcentai.egenctes with respect to -inyentJqn,~ or, dJ.scp',,~ries"made in" the. course"qJ: 0:r' ;UIl4-,~,r any. contract of, a.1!Y·.'G:o,v,er;:p.m,el;1t,f;lggllCY,·: butsubject. to "specific, .atatutes.: (such '.RS the 4,tomic:,,EJnE:):I:gy. iAct::!\n4·.:the.':~~tiqnl:!-1.Aeronautical .audSpace ,4-,dtx1~~istr.a.tiqI}.)Act) "'YV4icJ;i;sp~i~cagy,mro,v:i\ie.,foJ;' :tlledisposition of·p~te:q..~rights;~'";<; .;, : ,-,y,' ",' ,','t "--.:,,,,':!, {':;;;,;;> ,'"'' .:"i"~

1. Where. thepr~ncipal,,purpQse,.of .the contract ,is to "create, "dev:elop,: .orimprove; ,(a) p;rq9:\1et~,:.l~I),;·p~o~e,ssesi,or(otDl~,thq,cl,s,whfeh :a;tTe il;J.~~de~t :1;01"commercfaf use ))y:.,tI;t;~, general.pu1;>~~,c,;:lt. b,?P?~ ·Rria;~ro.3:li;; 9t:1requi~e4; ;f~;t\ su,~h·usebygoverrinientalregula~ic;ms;,;,;;.,',,:; ;.ci',; ,:: "',:,,'; ,',",: ;:-.,' .,,' :l:i\'

2. wjierc a 'priIl~ipal pUJ;pos'e,o;f the co:ptrac.tisfor.the:exploration,;intoftelds which .dir~ctly ,co~c.:er;n'bhe,p~blk;heai,~h::or'"pu~.f~c' welfare ; .,.c,: '

3...(a) Where."the:con~ractis in, a fiel9-;,o~ .ecienee or; te.cllnology dnwhlchthere has .been .. lIttle, 'Signi:fl~~Il~.;~xp~'~i~nce oi.lt~~l}'~; of ,WO,J.;k ::f1,1Il(le(l:,by" t,IleGovernment, ,(,0) where, the Governm.ent ,has been:..the, principal'deyeloperof

.'tiiefield ';" "".J , "':: '.:"',, ':', ':, ': ,'. ", ,,' ",. , : :':', ':',,\ ',' ,'" "':~;"" ,: ',' ,. '.-' ',", ..''- '.'.," ' .•';'.

4. 'Where tlle ..ser,vices ,of .,the ... contr~~t"llre:(a;) for, ,th.e, .oPeration ,9f:.",aGqv:~rmnent,~l;r~viiet:l ',r~~e.aJ.;c,h ,:01",p.r.odu;C~ip~: l~c~l#;v,;:,qJ,7'", '(~), ,fp~ ,co~r~iIlEltiIlg,a'nddfrecting tlJ.(~ worl.: of,'others., , . "" >- C,: .. ":"'- . c,-:

pnder such circuD),sta:nces the Government shall IlPpnaJly,acqllire the p:i:incipalpr exclusive rights thpJughout the ,world in,:aJ;l~, tq,l;!,Il:Y Jnv,en-,~ic)ll maCl-e.. In exceptional circumstances. the: c.ontractqr .may,' apqli~;r'e .. rights gre~ter''thanit non;exclusive Hcen,se. i+.the::I1~~4. of the dep.~rtm.ent.or,:lgen~YJwith, w~icll,the.contractor is ',dealing),: ,ce'r:tjfi~,s, th.at the gran~.oftl;l.e: P,rl.-tIcipal or'e~,ctusiye lightsto the contrrictor;will b,e>s(S:~,rve 1:11,e publiciIiterest. '.' .,.,', ".' ,.' ., ".,;', .

The.·White Housep?licystatement .. also ,specifie~"t~at.. greater ,rightsl)1ay, beacquired by, thecontl:actor(~hlit, i~" greater ril5l1ts;t~llll.Il,Ilonexclu~i,v~,lic.ens~),if, .after the invention' has 'been'identified, the' in'ventiori" (1) is·llot a'p!"iIllaryobject of the contract and (2) the acquisition of such greater rights is necessa.ryto call forth privatel'isk capital.

V·I·,:!: UV·V-.l".-U.L~J.V~.l".L~''''''' ..... .a. ..... .l" .....~.'.L_ .J;'V.LJ.LV.L

In another.eection of the policy-stri.temeIlFit is. stated .that when-twc.or-morepotential contractors are judged-to .jiave presented. prcposatsuf equivalent merit,their willingness to grant the Government the prfnclpal 'or exclusive right intheresulting inventions wtlf'be an.addftional. factor in the 'evaluation of the proposals.

,Th~:policy:statement. specifies that where -thepurpose .of the: contract Is to. buildupon.existingknowledge omtechrrclogy fon.use.by tlie Government and the .workis in a ,field.of,technology An 'rwhiehv.the contractor.thas tacqutred "technicalcompetence (know-how, experdence.rpatent position), the" contractor t.shall nor­mally : acquire, principal oe- exclueive.: rights .throughout. .' the . world with . theGovernment acqtliring:'at,.least'.an irrevocable •nonexclusive . royalty-free license

. throughout.the world.forgovemmentalpurpoaes.n:,the,principal -exclusdve rights-in-an invention are retained, by the contractor,

(l}the 'contractor must-agree to provide wrdttenreporta 'at reasonable intervalsupon request. by the Government agency on the commercielc use- :that.: is! beingmade or which is intended to be made' Of, the inventions and (2) the contractorand his licensee or his assignee m~st take .effective eteps wtthtn 3 years after apatent hae issued' on' the inv'e,nt'i()ll', ..t? bring the in,ve~tionto a point of prac­ticalappltcatlon i}r.i,n. t~e' alterJ:l.ative·ma~e.·,th£> inventi(fu, aY~ilable ror lfcenstngroyalty:freetoCQ:tppetito~: .,". ' ,..... .:. ..,' . '

Notiwithstandillg theabov~,where the principalo:rexclusiverigoht:' ure ne,,quil,'ed by .the .contractor, the-Government. shall. have the, right. to require 'the-contractor to license another on a nonexclusive roya1ty~freebasts,

':rhe Federal Ootmcll for Science. and Il'echnology, ,in .. consultation with .theDepartment of Justice, has been commissioned under this White House policystatement to report annually' on the effectiveness :of the' policy and a PatentAdvi~ory .Panel has 'b~en, ~tab~isl1edunder the. B'ederal-Oounctl for. Science andTechnology to work outthe details.: '.' . ,.' ..'. " .. ' . '

In the 88th ..and 'S9th'Congre,sses, .Se~at<!r, Long. was ,fmceessful in attachingriders to several ,pills; viz., the ,Ap'p~acliia billan~others, which' riders ,setforth a' tttle'patentpolicyfor theG.overriment. ..' ..."..-

Jn recent months the propo,ne:nts'o,f the title policy .have cited various abusesby those dealing in patents ; vtz., the PJ{Usituation [ll1lt,othe.rs',in aneffor-t fogain support for further .ttne policy .ridei·s .. and/or the adoption of an overalltitle "polisy :~sJ;(wards .Goeemment nnaneed research .anddevelopuient.

TIrE.'DiALOG

Hlstorteally, ·tlt~' 'patent system -has proven .it"s··,",,'orth, .e~pecially· dn those na­ttona wberethe'.underlying'economy is. still baelcal'ly f'ree .. "Phose who acceptthis -vlew', feel. that."th.e.adoptio;n or a title policy \','i~l w~akell the patent systemwtth its 'attendant ill effects upon the-economy and- the Natfon as a .whole. '. Assuch, any, change in the p()licyfrom, say, the flexible Department-of Defense(license}-policy 'to-a trttepoucy must be ca~'efuUy weighed and analyzed. Inadd-i~ion, until the proPQlJ.ents·6~'a: title .IYolicy·~anguarantee no Ilteffects uponthe-economy and, more importantly, uponthe,investDlen(of riske-apital, thereshouldbe great reluctance to adopta so-ca,lle.d title policy.

In' view of the foregoing, one basic question that should be considered iswhether 'or not theG6vern~entneeds. title inord~r to satisfy its needs or re­quirements.'SiIlce .the 'G-0rVernmellt.is not amanufae-turer. since the' Govern­.ment. does not make it a, P?licy to license inv~ntionsfor profit, since the Govern­ment has a limited staff of patent specialists and sinc:ethe Government haslittle expertise in evaluating Inventions froma commercial standpoint, it wouldseem unnecessary and inadvisable for the Government to ta,k:e,titleto inventionsdeveloped under 'Government-financed research 'and developllientprograms. Solong' as the Govel'Ilment, .obtatns a Hcense under the invention In question, itandthe public interest is adequately 'protected~ The reason Is that the contractorcannot .SUe Governmeat contraetoi-afor- Infringement In vlew of title 28, section1498,of the Untted 'States Code, whiSh states:

"Whene,ver an inyentioll'described in and, covered by, a patent of .the UnitedStates is used or manufactured by. or f()r the', United .States without license. ofthe owner, thereof or lawful right to use ormanufacture the same, the o"vner'sremedyshaltbe ,bY"actio.n,against -the United. States in the Court of Claims forW·~ ,r~C,o,:",ery,of, p.is. re[l~~}ll~ple ,and .. entire, compeneatton- fpr SUCh; u..seand malll1­):~t;:'tl):r~~ *;:"*"'" . .,.. ,'. .' .

....... '......

Since the Government, has a,.lice:p.s~"th~,<;~mtractor,llayiI!gtitle .to the. Inven­rtton call~~tproceed ,against. the .G.~,~.ernmen~:inconnectdonwdth .the.Inventtondnquestion.". . ;.1.'.' ,. """'.' ,','

On.ohe other hand..Ieavtngcltle.in the contractor.ethnulates the investment ofrfakoapital :to develop the ·illventio,n. commercially, .. because .' theuontractor hasan exclustve property ,right in and.tothe.Invention. In. addition; the contractoris Inclined to .seek and obtain as.':,muchforeign .patentvprotectdon , as is com­menauratewlth.: the inYentio~'so ,fi~ld'. ?f,.~u$e:: and the.- contractgr'$-,:f()l'(~igll:-,~ntel'-prises. . ..'. ".' :':.-,,,:. ;....,'.;..,._ :'T· __ ,','.' :.'" '. .._.. ,-,;..-.-",---:- . ..',., ..

Accordlngly.dt Is-apprcprdaterto rertccter-mts juncture asto ;whether or notCongress .should enactrleglslattonnndo.more importantly, wha,t.type J)i: legisla­tion .should be enacted. In. addition, .' might it not, be .advlsable. to wait, for rec­ommendations from. the., recently, announced-Presidenttal- Oomuusston-tc Studythe Patent System, before enacting Ieglslatiorr which will have far-reaching eco­.nomic effects. It is submitted that .fhe. JJ'ongress ought, to, "takeamtnute'' toweigh "its resnonstbntts torthe •Nation: in .ccnneetou.wttn this 'matter in order, tobest-servethe public interest. .

PROPOSEDLEGISLA'l'ION

, Th~i'e :a;res'~veral bili~p~nding. iri.i4e; Senate, nz,S.789,S: '180~al1d ,S.1890·ip.,eollneetion.witll-Goverriment paterrtpolfey, .aud it Is tmportant thac these billsbe.caref}llly:viewed in pgli.t of the. above-,·", ':"::

To begin with, S. 1899 (Senator Lon'!;, 89th Oong.) prescrfbestanJnflexlbletitle policy,,,,:Qich tl,lkestitle, where Government funds are expended. Regardlessof whether- the Government needs ,title, It must take title under S. 1899. As SUCh.the.poltcy prescrfbed by.thls bill Is.not In keeping with the underlying basis oftlle ~residential .. policy:~t~te;mei:tt(_ ,n,o-r.,. is'. it·,.in,keeping, with .' .the . best interestsb(·the public. When title to all invention vests in the-Go,v:ernment,:wli.el~apatent is taken out by the Government, and when the inventlon.andpatant becomeaY~,i~~J)!e(l"oy~ltyf,!-,ee,or otherwise, on a nonexclusive basiato all, little, if any,rtslc capital will be invested to commercially develop the invention in question.In addition, since the Government is not involved in the business of worldtrade as an entrepreneur.. .. ther,e .is., VtqeAp~.~nti\'e. fqr. it to take out patents inother than .tnts country. As SUCh, there can be a loss of (patent) protection tothe United': States as an.enttty.wlth, its·.atten~m;lt:lOlOs;,o~Ucensing.revet1Ue,'whichis al?:~in. For.'~h~ competdtion~, ,,:1:?eording!:v/ ~UC?,·.aititl~\po~iey: .'Y01l1cl netega te'.J'IIOreand moretnventtons andpatentS' to' the 'grOwlng''''gl'~V'~:y'llr(l.orGoye~llrheIlh~':Vnedinventions and patents. . '. "

As:,far' as, S. ,.. 789,,"(Senator .. 'Sal:tonst~n", 89th. .Cong.L. and ..S. 1899 (Senatorl\1c,Clellan,,89th Congo).: are coneerned., .-tlles~;_bills .. :llre'Oiilte,llsiblY.... compromisesbetween the title and license policies, but prescribe in reality no more..than asugar-coated title poli-cy; .... :, :",:,.,. "':.,<; "

Anyone familiar with the workings of large corporations or Governmentagencies is keenly aware that only on rare occasions will .the administrator .orhis' aid give up title' to: an: Inventfon.. based .upon the .crrterra' 'sctrortnm. thesebills. Once the Government has' taken title, it w.iflbeeome even-rnore-dlfflcultfor the contractor to.get.tttle back.

In Benator' Baltonstalf'sttdll, S.789; machinery-Is set .upd'or- the, contractor toget title back; but in each.dnetance-judgments are necessary which would-taxthe powera.ot a-Solomon. Accordinglyjthe' net-result; of the Saltonstall 'bill. willbe',that. the Government would. invariably .take. title and -rn eoroa .few instancestitle mightrevertto the contractor.

The same applies to Senator McClellan's bill, viz, sections 4 and.fifhereof.As euch.inone of the bills: currently before .the.Oongresapossessea the flexi­

bility .of either the Preidential policy statement ;9r>·the Department, of Defensepclicy..

COMMENTS 'AND' CONCLUSIONS

under pebirtinent of Defens.8 IJolicy"tlie'Gov~~~~t obtains. a Hcense. underall Inventions developed as a result oLGoyern:rnent-lInancedresearchanddevel­opment programs. If a p?Hc.y is"a.d.9pteg :Wli~ch,is practically or os~€nsiblY··atitle 'policy, it will drive many prospective contractors with the desired andnecessary, ~xpertise out()f, the .. busin.e,s~,of, Government. contracts, ,':In .addluou,those who continue to seek and obtafn.Government.contraets. wlll be:.cEtreful::;,to

Of0 U"V·f"""L~L''''''........... ,.~ ~ .• ' __ ~_._

keep a' clear line o(derUar(:'atioIFbetweenconipany~sponsor~dand- Government­sponsored' research-programs. When research is toebe-conducteddn an areawhich is sensitive as concerns Government patent policy, the contractoc.wnlseeto it' that no G-overil~'ent,fuil~s' are used .In' an effort' to: avoid: any, question ofthe Government's-tdtleto-an invention or-patent, .trnereeutttstnattne.Govem­merit will not ,end up 'with a.license-:-'-itwiW end 'up wttlnnothingi-. AS,such;,pro­curementby th.e 'Government ,will· be 'subject to.can increasing .percerrtage tofpropietah :rights, which-areunencumbered' oyi'Government ueenees.rwttnthe cetresult that thepllblic ill~erestwill not be best served. . '. .,

In-view of,the- foregoiI1g; 'it is':suggested,·trutt' n.poltcy: must be.adoptedwhlchis' .'flexible "enough: to -givevthe'. Government' title un-tnose 'instances .where -dt. isnecessary-tor the ..:Goverllll1ent 'to: have, title,1 :but:.whlch .ftrat.resolves; the: .doubtof·.ttuetn 'favor ~of' the:,'dontractb'r, t.reservmg to: the'Governmenta,·royaltyAl'ee,irrevocable',no~excluslve'worldwide;liciense', ..' .' , '

In'an:'effort' to .m~et.: t:lliS ~challerige':-and i to: satisfy" the, 'requtrements. ror.. a'practical' ,everyday'policY, .eoncerntng 'Goirernment~spo.nsored,research and-devel­opment, please find attached, hereto a bill whtch.i has: been approved, by;ctheConnecticut Bar Association 'and-the. 'Connecticut Patent Law Association. Inn+any respects the prqpos,ed.bplis.,simil~l'in its tone ap-d,appr()~ch to the; btllaof Senator Saltollstall,and Senator' ·McGLeHan.,", ft. ~e,aves title ,ill'the contractorwith the' Government' 'alwaysobtaillin-g'a.lice~sean(l,'pl'?Vi~.es··.nia~hin~ry".ani:lprocedures whereby tile Govel"llIIl4¥lt ,Ill~(f '~ke.' '~itleiri'order 'tobest' ser·ve.'thepublic interest, viz, th.epublic h~alth, safety" lind se~urit~<" '

It is. respectfully .urged. that this'subc()Jnrnittee,~nd,'~~(JudiciafyConiDiitteeof ',th~ .Senate. give careful cOllS:~l:l~ration,'~6the, '.~uestion 'of GpverninentpatentpoIi~y' and the p~oposalS" before. them a11'd' tha~ ..each '·m~mberpause''''~llst::,an4:rrute" to, tnscre' >to'ili,e',pu})lic' '):h'?-t' its.'.mter-e'SitSW:il1, 'b'~"p,est· served. oy; ,tqiy~legisl~tioIi'tq'b;eeri~ct#,; ," '" ''':,~.,!m Hi: ,,! ':'d'., ";', ,! "'.,,:"!"

" ::ll<¥p~~v:ul1y,su~mi~~~,'

IN:THE SEN'ATE'OF';!HE' UNITED! STATES' ,'", . ".!.,' ,

pEFINITI9!'J'S;':,:,,.,,,, ,,( i:;"·,·

SEc;'.2.:-.As used-ili this!Act~/"'.·",·",.,,, ':~:

(a) !(The ,.terin,"execlitive,depaIttnrent",jnc1ildesf anvesecuttve or milit:ar,y :de·partment-of.theUnited.-States,,"i ":;:1, . ,~,r:;

(b) The term "agency' denotes any Independent-eetabltshmentdn tne-execu-tfve. branch' or the Government, -the- .Gowemment Prdnting: Qffice;··the'LibraItY of /Congre,ss;and •any' wholly, owned: Government' .corporatdon: :

;(c) ';.' The .term "head'tused tn.conjunctlotrwttb -executtve departmentror- agencydenotes the head of such.executtve. department -or. 'agency; except' that; tne-secre­tary of Defense shall be the head of the Department» of' Defense-and of .eachmtlttary.department. thereof,' and! in', the-case' of'any· authortty.ocommisslon; orother agency,' control ovcc.wntcn Is-exercisedrbymore.tthan onedndtvidual.ssuchterm-means the.body exercfalng sucb.coutroi:.-. .". " ,'.' ','" ,

(d) The term "contract" means any contract, agreement, commitment,': orunderstanding entered Into-between cany -eeecutive 'department or agency andany other person for the acq.llisitioIl_ ,of ,any pr~~r,ty or the pe.r~ormaJlce ofservices by 'or on' behalf" Qf ~ ariY,,~:xec:qtiv,e'.',dep'~rtment,'or'agency.. Sucfi te;~m

inclu~es.'.any: 'asstgnrnent,' .s~bstit:uti()Ji' ,'~f,,', ~arti~s.:', or f3ubcontra~r.o~,' any,"tferentered-Into -or executed' for'or"-inC:onnectian with: theperformarice of thatCantIolrct,·,:>, ::<, ,:; .. 0: : .." '-:_.!./\,:,: ....,'.,.!( ':':''-''''':' :, ..,.,;, .• c'::' : ,.' '.:",'. '''.:

;-~e);' The term "perso~".inclUdes an!. iIidiyiclua~;.·co~P?ra~~on"'pa,rtner~hip,.firm,a'ssoci-ation, ill,Stitutio~ or'other leg-al'enti(v;' !";:""'" ..... . '., ".' ", . '., ... ,. (" :

(f) The term "invention" means. any invention, discovery, or improvementwhich appears to be reasonably patentable under title 35, United States Code.

A: BILL To prescribe'a'national policy; wtthrespebtto tbe,di:ltermination'and"dispositlon: hEproperty, rights. to,inv;en,tions, ~ade':' tn .(he,:cOU,rse.orexperimental, ,development,al,and

',:re.s-e:arC:b,worli;condllcted..under..contracts :or,~rrangeJ;l1ents,with the .U.n,ite(i, Stlltes G,.o.v."ernment,'andforoth'er'j:nirposes;'-' ,,' .....C. r'" '" ,j',,'!)),,; "":'"''':''' '""<",,

Be'it enaoieiZ fJyth~:Sei?a;te'antL'H OUS'6'orR'eii~e8e11;~atiV;s 6f'· t~~. Unite(l S,tatesotA1liefioa-,in, Oonuress a~8e,1J!'b?ea{That,thi~' :Rct' imiY:Q~' ,~ited aa-the "Nati(jti~lInventiohs':!.ct".· . '" " dl-.I',~,.!,; "[

: ':';'RO'PERTY' IDGltTS! i.s, nu.:

.SEC.' ,:3./rhe',Congress,he~~by,'de~Jaxes::'i~ -tQ\ ;~,~th~:~QUCY;Of:,,'t1l~",U~ii.~:;,S:~te'sthat.....,.,..";,, ,:", "-"., ,:,' .':. (!.,:;:'"'___.',,:,'.',, ,-'.' "',-,',,:,'::',,",'''':

(a) Eachcontractentered',into:·bYau executive. department or agency or.taeDnttedBtates and each subcontract-sst, alltiers,tllereunder;'iwhich· .jias.asoneof its",'purposes the, performance :of, -exnecunental.: .developmental, or: .researchwork, shalf.contain provisions prescribed' by such.executlve department or agencygoverning the.tdisposftion ': of: propertycrtghts: in and .to.-ineenuons. made ,,' in thepeetormancaor such, wcrk.rthereunder. .:Baidiprovlslone-shall. ..state-that theContract is subjectto.the terms, and conditions' of this' ,Act. 'Said:provisions-shallgrant' tofhe United : states ',a.,proprietary., interest- greater:rtnau that' .set .forthin subsection (b) of thts. section .In.ranv.tnventton. ,first .conceivedor.eeduced-topractice in the 'performance .otsuch.work .where a determination by -the pertinentexecutive department 'or agency that the publle-Interest-requdres-thar the-Gov­ernment. 'receive' .aproprietary: dntereet. .greaterr.than .that set, forth .In subsection(b) 'of this section. The determin.ati-on,:of·,Whether,the:public:interesLwiU bestbe' served- by .Government ownership: of, an-invention developed .under a.contractshall be based upon such factors: 'U'S whether the contract-s-

(-1) : calls.' roe usptonatlou -dntovflelde whtch-dtrectlv-eoncem the publichealth, safety or security and the inventions' Hkely,'to .resubttherefrom would

-'beuseful directly -in such field's; "or(2) :is-intended 'to-produce one-or-more end Itemstheuse; of which IsIikely

to 'be required byelaw. in,furtherance.of"the'publie,!health,; saretr.or.seourttr,(b) .' ~s··to those contracts not·;within"the: purv-iew:.or .subaection. fa),' '..there

shall be; reserved to the:',United :', States in "all, Jnstancesran Irrevoeabte.. -non­exclusive, nontransferable, .·royalty-fre'eIicense.· fer thetpractice throughout theworld, by or on behalfof the United States 'Or by any foreign government pur­suant toany treaty or other-agreement with' the-Government of the United States,o~for the. Government f?r gov.ermneIlt~lpU.J:iPoses, of each ,suC;h invention w;hichresults :rrornperformaIlCe ofsuch contract, , .' ."' .' . '

(c), 4cguisiti.on of-the rightssPeclffed. in 'Subs~tiontb)' 9f'.this secnon sbaube deemed sufficient in aU cases for the protectionof the public interest, so tha-taddltfonal rights shall not. be re,q11ired by any, ex~u.tiv~ department or agencyexcept 'upon certlflcation by the head' of such executive' department or-agencywith respect to-particular tnvenuons that such. addltional. rights are .requtredunder .aecttcn,6 h~reo-f.

(d) The acquisitionof ,if pr?priettiry interest greater than that set forth insubsection (b} of th~,s sectaon bv the Government to 'an Inventton shall be sulbje<:1:to .thereservation.of an Irrevocable worldwide, nonexclusive; royalty-free lic~se,

to .thecontractor and .to ~,W eJri:S~~D;!{_apd:fu~uw.assn~~~,ted ,and.a.ffili:a:tedco~~panles, if any, which 'license shall be assignable to thesuccessor of'tllatPRrt',()fthe contractor's business to whi~h.l;,lJ.S'hjHve:nt:i0n pertains. . . .

(e) Subject to the provtstons of subsection ('b) of this, section, 'an executivedepartment or .agencymay, whenever a.contract pro;vid~s,:t;'9-r·thetak:ingof rightsto an Inventlon by the United Btates under.aubsectdcn (a),.o:!=, 'this: section, waivethe rights of the .Unit-eel: states to such Inventron at any ttme on .such termS.- andconditions: as may be, determined, to'be)n"t;he .'Qestjnt~sts.;.of the,UIlite(1 States.Waiver sh,all be granted under tile ~.o~l0Yi'J!1g,criteria.:, '.' .. .-.-:,;' <",;' ,

(l.).-.where. the contractor has.had.substantlajexrerlenee and.backgroundin the. field of .. technology. to. Which :the.inyenti~;t;p~rtains: a1,1\'l ,-the: .mventicnwould have been a probable result of acquired skill O1;,eXIl.6rience.;,,; ..",:

(2) where the invention is a natural adjunct to other inventions, thepatents ror which are.owned.by tll,e:,c:ontractor"a:lld,:wh,ie-h in the course oftime would probably have been developed bY-thecontractor;

(3)·::-where'lthe.'invention: ts of such "character Ithat. Its. eommerclaltsatlonwould-depend upon; spec:ulative Inveetment. toa .substantlal degree.of .aklnd

-: ,i or,ctinarily;fac-ilita ted. by,patent protection;,.(4;). where the Invention-has: resulted from theconttnuatton of-develop­

ment, work in whtch. the contractor has dnvestedamounts- wtucn are-snbstan­:ti,al in comparison to.amounts, allocated to such 'development by the: Govern-ment under the contract; or .':: .::::.':'

(5) the Invention-lias been.developed :by.a. smalk.buslness eoncern.vwlthtnthe .meanlng of section; .3, oft-he Small -Buslnese' Act, 'whose economic'welfareandcorupeuttve position, would be. enb:anced-,through':acqtIisitionof' title tothe invention.

54-40o--:-.-.-65-pt, 2--19

The granting of a waiver by an.executtve.depantment or agency sliall be accom­panied, by findings of fact made by, the head of such executive department oragency; -wnten-uesrctoe: fully: 'the 'basis: undero whtch.the -waiver was ' granted.

(f) Whenever the provisions of subsection (a) of this section requlre.tbe headof: an executive departmentt otv.agency to take-a: proprietary, tntereettn an-In­ventdon-greater than that' specified in subsectton-fb) of this section, -he 'shalltake 'such' greater-dntereat unlesa.hedetermtnee, after. examination 'of the, factsof the particular .ease; that-special efrcumstances. Indicate- that the contractor'should :receive 'all, right,', title, •and, Interestdn-and'. to the: invention, -subject tothe proprietary interest reserved' to the 'United States-In subsection (b) of,.thissection, and that the .publlc healtho.satety .or: security' would notabe affectedadversely 'as a, result-of-the: contractor receiving. said- right, .tttle and, interest.The criteria for maldng.thts determination shallb&---'--' ,

(1) ; that the: interest-of the "particular .executtve department: or, agencywill not be adversely affected ;

(2) thatthe.Intereate of .cther-executdve departments or' agencies-of theGovernment willnot be adversely affected;

(3) 'that -there is Ii present 'commercial 'value and potential 'public usefor the invention; and -

(4) that <the :developer .or. the.' Invention can.. reasonably", satisfy publicdemand-for 'and use' of .the Inventlon.

Prior to making this determination, the 'head of the executive department or;agency shall make findings. of, fact thereof. These findings, or traet shall cecommunicated to. the heads of other .executive departments or'. agencies whoseinterests. may be-affected-by-the 'deter,mination. The responses of such .otherexecutive departments or agencies shall be.oonslderedbythe head of the executivedepartment or agency concerned when its determination Is-made.

FURNISHING OF .INFORMATION

> "skc. 4.' "(~) Ally"patty ~iltering 'into;:~;:~ontr:ictundeJ;.se~tion3h,ereof:;;haUfurnish tot-he -approprlate-executive department or agency a wrftten reportwhich shall detaij full and complete technical information concerning any.Inven­tion.::discovery, Or i:rnprp,v~?1en,t made in performance of such: contract, in accord­ance.wtth such rules .and regulatlona.as the executive department or agency mayprescr-lbe. '.. : . ;"::',. .'> ."

(b) Any patent which issues to a contractor on an Inventlon develooed inthe performance of a contract shall becolile ~th,e property of the United statesand .the patent be:dedi~ated to the, public, if_upon ,a. finding' made, pursuant .tosubsection (c) of section 6, arid. in the event an appeal.therefrom,istaken, suchfi,Il,ding is, affirmed :bya proceeding: brought ,ll,nder se~tion7,_hereof~ .thaf the~olltrll'c~or,knowlnglyand WWf~ll:y,~tJ;l1:J,elcl'r~porti~$ ()f tlle, ;~n.vention, requiredby an' applicable contract." LICE':N~I;N~;'g~ ..:pi*~'~~(3 -

SEC. 5. .whenevsr theGovernment -takes aproprletarY,inter€!stm an inventiongreater ··tl1an.tllat,sPf;Gified'in s.ulliiecti.on:(b) 'of sectton a and .makes 'available tothe public usethel"oof; the Governmentshall grant to the contractor which pro­duced the invention an iITeVOCIt~l~ exclusive<royalty-free nceaseror practice ofsaid Invention if within thr~.years.o~·t~eta:kingof such interest by the Govern­'ment, no actual use ,is:r;nade .of-said. il1ven~ion by another party. Such licenseshall be, granted upon application by, the: contractor to the pertinent executivedepartment or:agency. - -,

"'. '

-Ai>irI!HST}t';AT1v'E: ,PRPlJEDURE ro~ DE,.TER,MINA'f1~NS

SEc:.:6:-,(a) Whenever, .the head-of-an executive' department or' agency shalldetermine' that :an, 'invention,' made -Inche 'performance of' an. obueaubn arisingfrom a contract where the Untted.Btates has takenrtghts no' greater than-thosespecffled in subsection (b )'of secuon-S, 'has given .rfse tc new.. unusual.land com­pelltngfactors-related directly. tothepubltc: health; safety,' 0-1' .security which .didnot exist at the.time the' contract was. negotiated, but 'which-requir-e reconsidera­tion of the rights established. under. said contract,' 'h~shlill'\vithin sixty 'daysaffei'receiptoftheiriforination onwhlch.that-belief Isbaeed-c-c , -

.: '~: '(1)'make ndetermtnatton -supporfad:by-findings' of' fact that-he shall' takeon behalf.of 'the-UnttedStates a' proprietary .interest- greater: t-pa,n. th,at,speci-

'.~"'.""

,GO~ER:N;rI:f.E:N:.r, PATElNT,', PIt0TEqp:q:N; ~~P';: :'?f?JP: .crc: J;;,> ."~ 'j

SEC.'9. (a) :Wh('meve~: pro-pr'ietarY:';'~ights";s~cified~·l:iridet··~~hb~eciibh;:-diY' 'bisection 3 are taken to an invention by and in behalf of the United States thro:ugha declaration of taking, the head of the executive department or agency involved

"

-ufledrln-subseetion (b) .of seerton 3,pursuant to-the pl:'ov:isions,ofsub:sec:tiqn,.{a). f of.rsectdon Bj-iorcthat .. he .shalk-take .no greater :rights,,'tllan .are,requi~"by

subsection"( b}:i of,.section a-bscausetheIuvenuon does-not-come within anyof the. categories, enumerated.Insubsectton .(a) of: s.ectiQn,3.,:,Sucll determt­nation shall be basedupon:that'CJ;iteria,enumerateddnsection:3- ,(.a):;and(,(.e)hereof; and, ,','("-'" " ... "~",,, , __ ,,,,,.

(2)' jf" the:executive, department i or .agency i -headrdetermines Ito-take. .onbehalf .or. theDnfted. "States :a:< proprietary, Interestrgreater jthan ltha,t"pr,o­vlded-Iniaubsection.cfb ) of, sectton-Sc he shall: transmlt-rto, the-contractorwritten notice of hls Intention.rwhtch notice shall-e- ,',,'\

tA·);specify:thenature of the proprietary :Interest-In-that -tnvennonwhich the 'executive department .or agency head claims, en-behalf :of, .theUnited ': States ;

(B) state with partdculartty the basis for belief, that the Ilnfted.Stateeis entitled under-this Act to take-such interest m.tnantnvennon ;:',and:

(C) "accord to the contractor, or.hts dulyauthonzed,representativeranopportunity for a hearing, conducted pursuant to.the provtstoosor 'sub­section (c) of this section upon the question whether the United Statesi~,entitled.-under,tl:tis,~,c.t)O take suchproprietarylilt~res~in, that

,invention.'.' ,.. , .':': , , " , , " ' "", " ' '. '(b) If no' application for a-hearingis made bythecont;rncto,r',oranyqther,ili­

terested party, within sixty days after recelpt of notice by the coutractor,'or'if,theexecutive department or ,agency head, determines upon the record of- any suchhearing that the United ,States is enti~ledunder this Act to take a pl"()prietary in­'terest geeater than that providedin sll.bseetion(b). of section 8, theexecutive de­partment' or agency-head shall dssuewtthu-espect- tovthat-Invention writtendeclaration of taking on ~ehalf of the Untted-Btates-whlch shall-..'-."

(1 ridentify with particularity the tnvenuon.to which: it relates' ';;a'n~(2), specify the nature of the propriet;lryinterest -thereln sotalren-on be-­

llalfof the lJnit.ed Stat~s.". S1l:c'J1. deqlarationshaU be serv~upo,D:~he. contrac­tor or upon his duly authortsed representativerand a copy thereof"Shall betransmitted, to the Com~ssio;p.er ()f ,Patents...The:~exec:utivedepartfnent or

.agenc-y'head shall advise'the Commissioner of,'Pat'ents'J)ro~Ptly..concernillg'the pendency -and result of any judicial review:o-,f·suc,~'·decl~,~ati.on.:'-';::":'

(c) Whenever any section of this Act provides for-a 'hearing to be-conducted byan executive department orage~cy Into the question of the proprietary of anydetermination made thereunder-;~there'shall'beissuedto' the parties involved anotlce.otIntentlon to hold a hearing not lessthan sixty days afteethe mafltng ofsuchnotice. Any hearing held.underfhte subsection shalfbeconducted i!L CQu­forrpity, W:ith,.the provisions ,of the :·1\..dn~Jnistrative;P,rocedure:Act.. ,Tlll?!~. suau~e ,:1 .rlght.of Judicial .revlew under. :secti911 'T;;.of ,t)liS,A-c1;, tpany:~ec~,~ion"by .anexecutive 'department or agency under this' sU~ec,tioll' . ~. ,

c,·.·.·:?PRIC*,~~~

SEC. 7. ,Any;personaggrie,ved, by, ~aW .declaratlon unde,r;,seetAOlls;,:4,:, 5" .Il:Q-.Q. 6may;'; under. the Federal-Rules .of .Oivtl :Pro~uro, .title :28,;Vnite!l:;St!l~J,()oqeJ

obtatn.a review; of such determination, in.th.8:i.UIlit,ed Sta:te.s,Cou],'tiof:,Appe:).~~,: ;fprthe District of Columbia or tntne.court.orappeajs 9ftherJJn~te,d,;State&.;:fpJ;'.1;:he

judicial' circuit in which such party resides by filing an application for suchreview within sixty days ujtcr.notdce.cr such. declaration or determnatlon. Find­ings of fact made ill the adm~nistra,tiveproceedlngv lf supported, by substantialevidence" shall be ccnctuetve.. The ';judgment and decr:~-,of ..tli~ court: .shalf befinal, except that it shall:,be subject to re~iew by the,Supreme,:Court upon' certfo-rai-l, as, provided iusection'125":t',~~·title.2,8;Unit;ed,~tat,esC.o,d~:;" " '

RrGHTSBY. IMPUCATION'

,SEC. S;, No :rights·;gran~ed.l,Jnder.;1!JlY tnventton. or ·,'dt~'~Fip~~.~~'ant~.i~;:secti~~3- or sectton.b.bereorshan ,be deemed.to .. grant ;any rights);by:impliC:il.tio,n,__.underani other-Invention orpatent.

FRANCIS, ~.:'M~:bHNEi,:v:jC'& PreSid,e'1!t.

ators and developers of technology will be an }1H;reasingly "i:mportant .ractor JIlthis growing International competitive struggle. If the representattves.or Amer­lean Industry, are, to have maximum leverage, in tllis struggle,jtis dmportant thatthey .not.oe deprived of .the asaet of patent protection In. foreign-countries.

For these .reasons. I 'believe that, almost without, regard to the, allocation, ofU.S. rights in contract-connected-inventions, disposition 0:( foreigIl.Tights.shouldnormally be left, in the hands "of prfvate. contraetors~Necessarysafegu~rdsinterms .or compulsory licensing in situations involving essentlalfnternational in-terests of the U.S. Government could readily be provided for. ' ,",

J 'believe that with revisions related to the above suggestions,S.,18,09 wouldwell serve the public interest of the United States. Lendorsethe balanced andflexible approach which S. 1809 represents and hope for its enactment into law.

We appreciate this opportunity .to .expreaa our views on 'this subject. If wecan, aid the subcommttteeIn pursllillgt;1lis matter further. we would, be pleasedto do so.. ",' . .

Sincerely yours,

flA~E'i:ri~EOORP;,.Littl;e"lleJJ1c, 'N.Y.;.July 1, 1961$: .

Hon.JoHNL~1I!(J,~N, ,', ", ,'" ,'", ,," 'Ohcf{NJZan'f11J,bc0tn-~tJee,on;p'a~entf': T,r(l:d~ar~.~'and, O?P1Jr~q1i.t8~U"S,. Senate,Wai~'vngton;,JJ,.O.·". ' :.'"",:",' ."" ",';'.. DEAR..' SENATOR. :l\:t:0CLE~N : .For ygars· we have a,nxiHU,s~y,li:sten~d to .. the ,ill~'tense .. debates. on" Government, ,Pa:teI;l,t. poUC;y. whichhave,);ulD,l,i#ated in S; '789:(Saltonstall), S. 1809 (McClellan)', and S. 1899 (Long),:p,oWb~fo~~:yp:u.r som~;mtttce. We ~hi*itj:r:t:lperat!,Y~; tha,t,the issue bebrcught t9<an ~a.rJy. con­cluslon morder tP.~~the harmful ~;u~ertaintyill ind~ti:y~e ended. ":,. ,! ..• r..

Before 'comm,ep'ting on tile )jlree, bflle, perrnj~ us,to ,O,l1t1itte. puX ·pp.ilosophy.To ue tt ts erroneous tqassume thai; because the. qovernme;Ilt. expendsfunds

in research,a,rid.d~v~lopniEmt.contracts.with us,':'it is the ,~atb:er..of. result,ing in­ventions. 'Such, Inventions..are the outgrowth ;(}f, our4.o-odd, :rears~.accUIJ;lUlat~onofskills,experien~e, and ,:inve.strqent.in eleetrontcs.va field in .W.hich; we are an.acknowledged .leader. ,Wethink,.It quite,fair that our ~Qv~rnmentpartner

receive a .. nonexcluslve Iteense, hut ,n9',I:r~Ore;,.because. the intel~ect:ual.propeJi;y.it:!basicallyours~hecreation of the:bra,inpowel.',of our skilled technicalstaff, whichwe aloue.tratu; support, and encourage with private risk capital.

All agree wi,t~, the. Government's :,desire to have inventions put to actual, use.After all, .that is: the purpose of thepate:ntsysfem,., But we believe this canbestbe accomplished by preserving our.rreedointo exploit forproflt Inventlona whichare, in ,an;y.eveIlt,.oueown .creattcn, .. As prudent. manag'ers .,oif OULr, stockholders'interests, we are very reluctant to r-isk capital,indevelopiIlgaJlinventicmJf\Vedo not haye the shield of patents unhampered by feal;:~,9'orveTnment,seizllre:True,we will do it without patents if the gamble is a good one, but we WII do itmore, often with unencumbered patents. And make no mistake about,it-rom­slderabla risk is involved in further research, product development, and mar­keting, after an invention is made,to put the. Invention in use by the publtc.We do not believe y?u':tr~ going to tlndbusinessmen as eager to take these riskswhere the patents'are in a Governmentpor,tfoli,o,.. ... , .' . . .'. '

The history of our company isvery.muchgermane to the subject. ProfessorHazelthre.Iedf Governmenteervlee at theend.nf wortd war I with an idea onhow to apply defense technology to the thel1~embryoni,c.domestic radio receivermarket. The company was.rormed.around 'him ,alldgr~w to its present size inthe intervening years, during which .tr contrtbuted extensively to the commer­ctallzatlon .of,Aomestic radio, monochrome, .. television, and, jinalIy, color tele­rrston.' ... Outof.thls grew extensive contributions to cl~fenseele-ctr:onics.....Patentswere an extremely important :part: of the business;" j,t. is .quite probablethat itnever would have developed wlthont them. :" .... ,: r :

Despite what Senator Long Is said to have testified, 'the patents, in practicaleffect, were' the result of many millions of dollars of Hazeltine's own riskcapital,not. tfieGovemment's. Senator Long obviously does not have the facts. Of .ourpresent portfolio ofabout500U.S: patents, veryfew were the-offshoot of wprkunder Government contracts and 0llly. because our people were able to use .ourp~ip.r,~]{~q.s:i:n: tlieGovet-nment projects. , Of, the latter, .none played anveubstan-

(e) ,TheSaUne:W~ter,.oonvcrsion ,Act, of ,l~f!.1;t75: $t~t.",62~) ,is,;a,ll:).~fldlffli,bYI

etrndngout.sectton efb) , ",,; ',,' ' '';; -,;' ',"' ..:";,,,,',," .':',:' ':;:,:)1";',":, :;;:>i(f) The Coal Research-and Development Act of 19!3Q'J1~: Stat.,·3&(,l}. ~S!"am@dEl(l,

by striking out section 6. ",,;,."';')):"',.;(g) Section ,4 or the__ Helium Act, as amended by the Helium Act Amendments

of 1960 '" (74 Stat. 918) is. amended ,by striking out the following language: "Pro­vided, however"That alf research contracted for, sponsored, cosponsored, -or au­thorized under authority of this Act shall-be provided for in such a manner thatall information; us;es,: products, ,processes, patents, and other developmentsresulting ,from such -reaearch-developed 'by Government expenditure will (withsuch exceptlona-and Itmttattons.otf any, as the Secretary may find it to be neces­'sary in the interest of, national defense) be available to the, general public.'

(h) The Arms Control and Disarmament Act of:1961 (75 Stat; 631) is-amended'by striking out section 32, .'

(i) The water Resources Research ,Act of ,1964 (78 .Stat. 329).:is amended-byetrtktngout.eectton Sna.. . j' ,

;(j),-.TheAp'palachi,a~ Regional Development Act of 1965,(79 Stat.20},.is:amen4edbycstriking out section 302 (d) .

~FEC'l'rvE,·DA,TE,

ti~~fW~~':'(Yi;' D~~i~,i!:':'ji';:'<'D:mI5''V,F}n.,-,~:ms~AJt9;s::..I:N:f'';r,I~-qT;~I'' ';.:

,,',;:, ',":;:'.': :c:', ,;- .: ...'. 'H: Denp(Jr",OOlo·,l'lJ!¥!i~8!;1~,~,5.Senator JOHN L. MCCLELLAN, . ":"'" ,,'."Oh,airrnanj "l:Juboommittee, on :p,at:ents",1,'rq.d,em,ar,ks, ;and:q9:p,y!iuht~i>JY#ici.ary

OPrnn~~~tfJe,;p,.S • .se:t'lfate.-:W:a.8.1lfl.n(Jtpn,;iD~q.·,,--; ," . :.. ,,' :;':;,::',''-DEAR ·SEN.ATORMcCLELLAN c-I:Should like tjlsubmtt:for';th~',record,R'brief state-­

ment of my personal' views on S. 1809 and S. 1899:concern,ing"Federal· patentpolicy, on wntcbvour subcommittee.held-hearings-last weelr;. i " ,:,In,summa,ryj,;l favor, with -a few exceptions, the termsorthechatrman's billi

S; 1809,andoppose·theterms of·Senator Long'S.bill; 80.1899. . .'::For, 10,"yea'rs; ,my: applied economic .andjmanagement. research work bas re­

qui red 'frequent. and 'intimate' contacts, with- industry. ,During, the, ·lasL5· years,the. bulk of, these-contacts-have. been with technically: ,oriei.O!ted',:firmsnationwide.'I'he-problems .or i'Federal patent policy .have: entered.-into. many, aspects of ,thisresearch iWork;(which has been sponsored 'both by Feder-al-and ..privatefunds},

This _experience, .. plus. study .. of the. extensdve hearings. and .publtcattons. on .thesubject of,-patent rights: arising from federally sponsored contract .research,· haveled me, to-conelude that with a few.excepttons, patent rlghta should rest-with.private industry .cr should be-made-available on a Itmtted-exclusive basis to.private' Industry.v Hence, myvtews are largely in -agreement with S. 1809.

Proponents ,of the opposite viewpoint, make .very appealing arguments abouttbemerttscr ..a .Government title polfcysuch ae advocated.tn S. 1899. AimostInone of these arguments stands the test ofscrutiny, in mropinton....For example,the argument is made that the Federal Government should take title to allpatents arising out of research supported by the taxpavere.to protect.the publicinterest from "giveaways." But, rather than protecting-the publtcdntereat, Ibelieve a Governmeot-tatle policy harms' the public interest by dtsconragtng thecommercial- applicatton of the .frutte of the publte'a R. &: Da-tax-dcllarse-thustendlngnodeny.the public new..better, or 'less expensive products. I have beenconvtnced of the validity .or i:Qidustry's argument in this regard•... : Since industryusuallyhas to invest 10 or -mora ttmes, the ,R.& D. costof.an Invention in design­Ingv produclng..and marketingit,there is a greatly-reduced.fneenttve.to investlarge sums to.develop inventions on.which the patent rights are nonexclusive.

Returning to the chairman's bill, S.1809;;Ifeelcertain thart,mr rew obfeottonsto tnts bill were; covered .In ·detail in testimony made to your subcommtttee Iaatweek.!" only-wish to state my bellef-In the gener~l~ty;thatthernoreremote theFederal Government can.plaeeftselfIn-such administr:ativematters as selectingItcenseea and protectlng.Hcensea froIp.:lnfringemen.t, ith,e: better, " Sucl1.,a,diyitles,

"" ,.',,--, ":~EC..,' 1~-:This, ,Act.. shall,tak:e,eff~ct'ontl1efiJ:~t'day.()~, tIle. ~OUJ1t:Q ,~o~t~ ,b~gill:

riingafter,tb,e date ofen~ctm,€!ntqtthis,Act.' . "\ ' , , '

Our, tnvestsnents dn re:3,e:a:U~l:l"and .development; have averaged, almost, $1, Il1UUonper year"since;,·the.~<>:undi~gof .tllecoinpa~y,'and are currently, running, .at .over$2,milliQn per·year.:r'l,"~cti.Cally_;al1,})f:thislt.& J;);,:inveS1meIlt lla'S~l?,me Ol1~of company funds without Government.support. ., __ .: ,,'

Our-company is a pioneer: in the practical commerclal applicfl:ti'0Il of, atomicenergy, ito-peaceful Industrtal uses. We, design, manufacture" seu ana eecvteea \a:rgefamily of precision radtatdon.vgaglng and control,syste,msespec1allYadepted to meet widely vary~ngrequirementsof the.material-processing indus­tries. We have installed well over 7,000 gaging andcontrolsysteIr\:&,employ'ingradioisotopes, in such baste material-processing industries, :asrubber,;paper,pTas~ncs.. tooacco-steet, and chemicals." Our products, sold under" the. trad~i:naT,k"AccuRay," combine principles of nuclear physics, advaneed.ielectronics andservomechanism tl1eory to provide extremely precise measurement and,controlof moving materials 'being processed-or. chemicals flo-wing Inpjpes without con­tacting or touching the materials 'being processed. For example, some of ourgages measure the thickness .. variations in extremely thin, plastic 'sheets, suchas' are used-for food wrapping and packaging, arid control the sheet profile' totolerances 'measured in mtcrolnches at comanerclal process speeds. Others-of oursystems precisely control the sheet thickness of heavy steelsheet traveling athundreds .of feet per minute and almost instantly detect ebnormaltttes that mightcause severe damage to the steel-rolling equipment. Others OfOUl' gages measuredeustttesot .liquid .. {tr.IUrY chemicals in Pipes With accuracies cf better than 1percentpr.pr,ec:i~ely:deterDline the.fi11~leyel of materials in bottles ,or .cans onhigh-speed conveyor lines. ' .:"

All this has been made possible by ntilizing',J;'adioisotopes made available bythe AIDC for commercial uses,without significant Government financing or sup­port. In fact, the Government has 'Only recently. come to- our company to- takeadvantage of our technology developed at our private expense. ' ,

Patents have played '{In .important part in protecting our substantial privateR. & D. investment. Our U.S. patent portfolio hos now grown to about 120 issuedpatentswlth over,l00 patel).~,aPIW~ation'S1pe:o,d,ing.. Acc.or_ding~y, .our ~~:Q1p;.J,nyis very much concemedwtth G,Q.vernmen~: pOlicy'~n~l'admiriistra'tive'proceduresconcerning rights to inventions developed' Under Government contract. Wewould like to help Government ugenclea make, use of {)U1"..know-how but, underthe widely varying policies and p:r()ceduresof,V:Elrious'G:o~ei'nment.agencies, wefind it difficult to assure, that ourcq.mlp:~rcialright~in9ur,pa:telltsand.techntcaldata will not thereby be -jeopardizel1,., ,',' we Irave parttcular ,di:ffl-_c:glty,~n.deallngwith the AEO because,of statutory. requirements and the, A.EC'Slre~trictivepaij;entand data policies. These problems are 'also present, .In.Ya,ry1IWi degrees, ill deal­tng wtththe .Nataonal. Aeronautics and 'Space Agency, the B'ederal Aviation Agen­cy and various' branches of the Department of Defense. Home of these prob­lems. cunnotiat cpresent be completely resolved by the indivi{iual Governmentagency because of statutory requirements ; others are created by nonstatutorydepartmental; poltcles. We, ho-pe' that a few specific examples of recent prdb~

lems-In dealing with, these, Government. agencies,w-ith: respect.to Inventdons andtechnical data will. serve. to .point up.the need. for a more effective, though nex­Ible, Government patent pol;i,GY"Wllic.lJ"will,llelp, us in dealing with any Govern,menr.agenclee-who may seek.our. servlces.

PRESENTPRA.CTI~S.OFVARIOUS. GOVER.N¥ENT AGENOIElS ON PATENT RIGHTS

You are intimately familiar withthe 'pl;"eseilt diversity in practice Of the' 'Gov­ernIllent agencies and .departments with regard to patent' rights. , ..It-wouldappear ,helpful, however, to revie'\V,-briefly,these, practices to' see how' they,affecta-company in, the position of' Indust:rial Nucleonics Corp.cwhfch is particularlyillterestedindevelopmentsrelating to' atomic energy and has acquired specialcapabilities in' this field,' almost entirely without sponsorship by the U;S,; 'Gov-ernment. '"

Industrial Nucleonics Corp. has' had' anunusual-opportunlty to experience inactual situations the current attitudes .and practices Of,va,rious Government, agen­cleaon patent .rfghts. .In .fact, .wfthtn the past ,2 years" Industrial Nueleonlcshaa.negotdated with,.eacllpf ,the';N:avYJ;A-ir)j~q:rce:,NASA,and the AIDQ, and con,tta;cts,-have.,b~i'obta41edtrom. .th~~g,.,a~~t;t'cies., or ..departments. I.Will,t;~fer tospe:~~:(iC:jeJplIp,ple;s.o~the l)I:~wti.c,~: Q~.J~fs~ ,dePll.~ments by' usiIlg .the. act.u~J,Ian-

........... .." ~ , , " ,'.>; ..., 1.'..1; vuu'

able 'for, suchpurposes: and I -know- of, noGovernment-agency,whose:tiutndate it isto 'get drugs throughFDA'approval. . If .there-nre .any Instancea where-a Govern­ment agency',l,las:in'fa,ct accomplished this, such an occasdon.must beso ~are as torepresent the,excePtion, thatproves,'thelllle that in this countby.vtrtually all. ofthe drugs,. presentIY',erupl'oyed -were-broughc to' the"patient,:and' the,' physician:through a pharmaceuticalcompanYi .'. , ' ,'. .... ". " "-

SllPpase some of the, 'basic .research" 'leat¥-ng· to-a 'potentially useful; 'drug: is:accomplished' ina university under partdal or even complete NIR:subsidy; "" Thedistance' between, that discovery' and, the ultimate approval of;.the :drug,hy, theFDA must be 'measured inyears and, in hundreds of thousands or in millions, of:dollars,': Would' a -pharmaceutical company ever take -that'finanCilil,riSk'with"-J'r.out having 80m.e aS8uranc.e of .protection ,f.O.r at.least.a certatntpe..~·. i'iO.d.'of:time'?- '

ol\£yown feeling is thatrunder such conumonasucu' a-company shouldbe glvenR semtesciusive license (the other partner obviously being the'Gov:ernment,_which .1should retain rtghta to such an invention)'-'fp;:;.ae lamt··e;;..8years- starti~om' !

the date that FDA approval had been granted. There is, a verygood,reasonforihat provISO. '. if, fOrl,llStance,1heinvenhon' di;!:alt ~ith a-maontne, a 'company , JCOUld, estimate the potential market,' the size 'of its' own investment, required-to' ibring; the product to the market.and the chanees of recovering its investment and: .Iof ultiinately making a profit."This is clearly not the case with a-drug. Some'of~h~'most promtstng-drugs fell-by the' wayside'after: several years: of, extensivectimcaf testing:' Furthermorecthe 'less,the~eis known about ,'a'givell 'clinical. useand__ the less precedence there is for siJ;l1ilal' drugs In that area, the longer it takesthe, :rD4:',~ogrant approval~and:p~~perlY'so., . T myself, have 'been' the,discovereror' codi~cgyer+r'Of a number of'imVOJ:tantdrllgS',whicb,'are now used:, cltnlcally.In tw()')~stances~the'first'anti~ist~mirie and ,one' Of, ·t1;lei)rsV oratcontracep­tire~~~o: s,imilar9:rug~~isted'anY'Vhere,911, t?e, market .and a great d~~of~.~wO,rk had, to :be done to convince' the'FHA.of, tJJ.es~fety aniiemcacy ()f such'd:rugs.In the case of the or,al, ,contrace.ptiv~,.the time'interval;"'between'm~" .initial,chemical discovery (while' working at' Byntex): an<i,the,':FJ?Aapproval'wasl0yellrs,6 of which were spent .sole1r on clinical work; , Ther~'sIll1plymust'be someprotection to the'~lllpanyfor the,l1skit assumes.. If·there·will oenc PJ:otec'~:I~' .tton, then, in my'opini,ou;the' ,Ilet.I:'es~lt'()fsection 4 (a) (2) ,~il~'be tJ1atveryf~~Vif any. potential·.:di-ug discoveries,. D;!ade, in: 'unive,rsities', under, either .,part~al'or'complete Governments.uPP<!'r;t Will.reach the publtc.: """ .:;"," ,","

3,Tlledefinitions of "inventions made,"1nsections2(e) and .(g)al'e,somewhatvague; at, least in.tne area of drug research. According to the present operation­of the Patent Office, adi'scoverY,is consid~red patentable,OnlY'Yhen autilitrhas-'beendemonstrated'; In a drug; 'such utility is' its' biological 'activity 0: -thefact .. that the: substance can I~, transformed into. 'an()ther. one with biolo'~ea'l;

activity.'Whois thetnventorun'defthe definition in your "bill ? . The. persollwho fi~st madethe substance"01' the on,e. who, dfscoveredfts utility? ···.The'clrugfteld dareplete \vit,hexamples,ofthefo,llowing 'type: ." . . ".'

Frequently a chemist will synthesize asubstance in,00nne~tionwith researchthat may have absolutely.noth'ingto,d?wi,~~c'rmbliche-alth., lJ."'he research workmay have been completed months or years'ago and, thenoneday thia substanceis submitted to, '3. ,rpharma;ceutical company for gell'eralpharmacological' screen­ing, which uncovers an interesting btologtcaf activ-ity. Usually, further chemicalmodifications must be made (in this Instance, probably in the drug firm's labora­tory) before.thebest compound.Is obtainedwhich can.ohen be put through thelabortoua toxicologtcal uIld:cUnical programs. Even if the very first compoundsubmttted 'by the outside chemical investigator were the ideal one and requiredno further chemical modification, the complete biological, toxicological,andclinical work would stip,be, required. Who is the Inventor-under .your presentbiU? The chemist, who made-the substance .the ,flrat ,time""at a untversttvunder, a Government research grant, but had no evidence of utility for it andhence could not 'patent it even ifhe wished to do so, or the pharmacologist inthe drug firm who discovered the utiUty? How would such a case, be handled?

The second and 'equally frequent occurrence ds where the chemist hae.a verydefinite biological goal in mind when heflrst commences:,9n bis: synthetic re~

search. When the compound Is finally tested',' it 'is' found .fo 'be' Inactive ',ortoxic. However, when ,Ithe 'same substance Ia ecreened Tor some .s·ompletelYdifferent biological activity, it is found to 'be acttve." Again, 'who.is the inventor?

I have-described twoextreme:case,s; out there are many others that fall inbetween. In each. ~!1stanG~ I ,have. assumed .tha,tthe, 'plmr,JP;~~()~og~cal,,~cr~!i,i,~~:

In-the takiIigo'f sai~ ;rignts, may.'make applicatdcn.to the Comniissioner:'.of Patentsfor: the issuance or.a.natent.tncrcror to suelr.executive' department or:agency headon, behalf o( -the-United States. ',If-it,is,' determined-by: .the ' Commissioner ofPatents thateuch.Inventlon is' patentable,' a,patent- shall-Iseue.to.such.exeeutfvedepartment 61''agency head .cn.oenerrof .me United, States.' '

(b) Each executive department or agency head may grant a royaltY~free,nonM

.exciuetveucenserce-the practice-of. any:-invent~ol1for\Vhich: a patent is held'under,' this. Act on 'behalf. ofrtheUnlted States ;if; such: Iicense is 'granted' in, fur­.tbernnce.cee purpose set: fo'rth in subsection- (f) of, secuona.r-rt such.nonex­elusive license fails to result dn-the practice.of anidnventlcny suchexecutive de­partment or-agency may: thereafter' grant an exclusive: license subject ,to.section5:of" this Act, provided 'R .ftndtng.of fact 'is, made by the- head of such.executivedepartment 01' agency that an exclusive license is necessary to 'insure practiceofthe,:in-ventioli.Any,<p-arty'aggrieved by.suchflndtng of fact may bring pro­ceedmgs iunder'subsecti'on:'.-('cj, 'of section 6, of thls'<Act., "Any' license under thissubsecttoir may-be-granted for the effective: period of-the patent or: for a moreIimtted-perfod.of'ttme.: ;

REPORTS TO: THE'CONGRESS

"SEC. 16. '. The: h'~~d" or' :each" executi~e ';~epaitmen:t or '~g~nGY ':)Y,~i~h awardsanv.contracts. of the claee.descrfbed, In .secnon.a .shall. su1J.llli(semiannual. reportsto:th.e9ongres~:vv:hichcol1tain---,-'.' ,'. ., •.... ;;",, ,,:,':' .', .

(~),. the. number of,inventions. disclosed pursuant. to .. such .: contracts; ".,,·J2) ... theaiumber and general :Q.at1J:re.9~,such.inventions .with.T.espect.·to

.whtch: the 'executive-department"Or)lge:llcy.acquired,,::qq ,greaterrig:l:lt .thanthose sp'e~i.tied-ineubsectton. (b) ofsectlon: 3"allda .. summary of. the findingsof fact upon wh~ch,suchq.ete!win~,ti911s,were made.;

;' .(3)· the-number .a-~d"g\,!:lleJ.j~I-natl,lre·o~.:i-:t;lventio,nscomi.ngUJl.d,er~the cate­gortes described .:in.subl'le~tip,p::;,(~,)::,-Pf: section ::3 ,.:W~~h ,;resp~ctto .whleh .norights greater than those. ,sp'~ci1ied.under .subsection. (b) .. orsectton a.navebeen: .taken, and. a. sUJ,l;lma·:ry of, the- findil1$s,()~,:fa~t. upon. which .such .deter-mtuattona we,r;e;mage iJ;l}ld ....,' ' .<:".''; '::",' ',' .' .,.,,-

(4)· the,p:lJ,mber; aJ;l!l·;general.'l1atl):or~:of such.dnventions Jn whichfhe ex­ecutive':d~pa,~~~n~;9r::a,gency .has .acqutred '.n, propr~eta:rY -illterest .greaterthaIl ,aroyal.ty:-:fpee-,neense. .

RULES .. ANDREG;oL'ATIO~S

ssc.ri...The Secretary of CODJ:.Iuerce· Sh3)1.promulgate rules', and . regulatdonsfor the' administration of this A¢t.. Eachexecutive department and agency ofthe .Govemment Juay issue ,suppleme!.l,tal'rules ,and. regulations required ::for itsinternal administration and consistent .wtth .tne rules and regulation~'.p:rolllul:"gated by the Secretary ofOorhmerce."""" '.',,' -, ,,' .. ',"', "'--"

sEYmR;iBTI.ITY \htlu'sE

~~. ,12.: },f"~titproVisionof:,thisAict,or"the',application ·ofsucl1:,prov-isioii toan:y·~sdn or;circ~tance,'is'l:il?I<l:·invaUd, the remainder :ofthis Act.or the applt­catron- of; lSuCh,;pro,v~,sions,:to:pets(ms, jor··circUllistances other.ethan .uroseustowfilch 'ltis held in~valid;,shall not beaffected-thereby. ', i-" .. . ,.: ~' : . .... , ,... ,

TEClHNIOAL' AMEND'YENTSi'

not be the' subjecf'of paterit,applicatidns'or patents: bem~fttlng}th~:,investigato;ror tbafnstltuuou. Having 'stated 'these ,'two' :-pr'emises,:'}"y.roul,d:;,~now like .topoint' .out' that the', present 'patent ,policy' is' p:t'oba1?lY"unenforcell~l~'in" itscurrent,f.o:r~' and .that ,it can be pernicious if ,.taken"liter9:11y~" '-TheO,~etical1yUJ1d ,1~gany; "thi~- ,\vill'ena:bl~the:, Burgeon 'General-t() 'terminate 'most; researchgrants 3:t',willif' all, administrative proce,duresare: not .ronowed by: grantees,since. 11e' nowhas this prerogafive. '"I' shall, demonstrate bel0tV ' with a concreteexperime,Dt',tl1at 'the lllajority 'o~'iri.vestigatorsaredefinitely violating thepaten~procedure; as" it, ,is now ,defined '" ~I:Ld" that, they' will' be forced to ,continue'"-to' 'doso.vbecaiise it" is' completelydmpfacttea.l. I 'shall also sh'owthat;evenifthegr~ntees followed" the' present regulations: 'literally, the' NIH would be In-noPOsiti?ll to handle, the proble~'.

I am presumiilg that,:the ':c~i~f':Plir,p()seofthe'~IHg;rai).tprog,ram-Iarthedevelopment of new kno",ledgellIlt:!uewcapabilities,j,ll'the health sciences andthat,,~ucp.informati{)ns4ould"be,,:ni.a~e'available'tQ.the,);mimc;,' The traditionaland proper wayof"i!laldng,',itpubFc is,thr~uglijt1l_e.·m~ditlIll'({f scientific pub­lipfttion~\~am assuming;'furtl1er, that it 'i~'not the'prh:n:ary 'o-r' even secondslYfunctio~:!9f .:the.NIH" gra:nt.progr~m to: :Secure:"),)~t~ii~s'on ?eh,a~'Of the;,G:ov­emnrent. Indeed, '.' in t~e" relatively, tew cases;:wher~~-','pateIlts;'are;'taken <outby' the, Government, ,:'~e;v are made ava.ilable orroa' iroyalty.ifree"basis,:thusfulfiHingtheconceplof:availa,bilitY·to:thepublic; .,". ..... ~ . "" ...'

'I'heref'ore, the onl!'poss,ible',',justificatiQn. for' J?atent,s'isto' safeguard! ,t~epublic rrom private illdivilluals.,()r organizations secllringpate:Il,t,s, on' thebaetaof e3X~ier pU'blica~oilsdescriibing NIH-sUPDOvte<i 'Y0rkj,s:incesuch:'pat,en~,ap­plicfl~ions.· couldbe:~l~cl -wttbtn a year;'of the publication' date, provided'c~:rtainJ:>thi.w.co'nditions: were met: ..'.I tmagtne that occasionally-such' ',a:.,situatioll,','mayhave 'arisen' in .the past',andi~ -tsconceivable,t~flt'it; ll1igh~:'arise i~ :the .fu~ure.H()w~:v~r, if we co~,s~del' ,t:lle' fiic't, thf!;t<there' are' wen 'over ;10;,~' ',Np3:,g~a;o.tsill, operatlon-per year, !illd'Jl1'lit ,-t hey ,gi"e' rtseto"pto.ba~ly 'a'large~ 'Ilulllber, ofp1,lbl~~'atiops"it is ralse. ec~nqInt'.in the e~tr~:tne't6'devi~e'a srstcm W~iCh 'Yi~l

cost},lS u,n~old mi1lioIl~ '()~,d:ollars,~ ])lan-years to:pl!l,~,~' pOsSib~e, minute ,"lpop­~()le:'.:,· IJ:lpe:,reason:J9J,' r;q,y. concern, ,angformy- havingperforrned,the; specifice~p~riment o,i,It1ined 'l?el?.v,'is-tJi,e/ollowirig,': ' ..': '":".'. ." ,,' . '.' •.. ,,"', .,"" ,

Piiragraph,' 52l,22, qr;tv~nti0I:ls llntt;discoverfes) .as, ;ptiblishe4.ip; -the FederalRegi$.tel.' is co.ve'rel;l':iIl'furth~r',detail:.In ·seetioJ?- 505·of -the -Granta ~lVIanual, 'datedJ,anua,ry 1, ·1963'. ,T:lie 'first' 'sentence 'of s!'l~tion,,5Q5,' paragraph' A;':r~a'ds':':"De­partment .of Health',"Education,'andWelfa~e" regulations ,-'(45 ,'CFll"- pts,;':6and ~} provide as, a condition 't~a~ afl,'inventiclIwarising'outof the' activiFiesassisted. by, Public Health 'Servicecgrants': lind· awardS'8h(1,U be promptly andfull1J r~fJ?r,tedt(} the Surgeon Gmi&l"al('; ,[]jJ,Ii'1:phaSiss-upplied:]

This l~port" according to pal'agraph,G;' must take the ,fOllowingform 'i, ,"','" "',",',' "";';: """, ; ',"r"', "", ,,', "" c,,, :

-o.: FORMAT/REPORTS ··OFrINVEN~ION

"In respect to inventions reported dlrect to the Surgeon.General,fordetermina:­tton.runder Department' regulations; a formal. report' or invention is, .requtredtn the nature of answers to1S questions listed ill . the 'outline ,for, inventionreports (exhibit 2 );", The form .and.t other rspeciflc instructions i for submissionof-the report wilt be' provided upon request;

"Progress repor-ts, which ... may, include _descriptions of inventions", may notsubstitute fer formal.reports of inventions."

In otherswords, In. order .to .prevent .the .sltght; possibility ;that some otherinvestigator may. patenttwork., performed by an NIH. grantee, all possiblediscoveries or inventions .should be-reported to-the Surgeon' General, who ..wmthen decide Whether: .patenta should be taken out. If· 10,000 to 20,000 publica­tiona-are produced.ieachryear but ofNIH~supported projects, the possibilitythen. exists" that the•• Surgeon -General .may , wish -to protect; several thousandor perhaps all of them by patents. In order to be able to,' decide on this: .point,he must first have the necessary invention disclosuresiowhlcln.cannot be theusual annual reports of work performedunder such grants.c

NIH:.form·PHS 8945. (dated March: 1962, and-now-Included in-everv.uewgrant' application form) defines andnvention. in, the. very.broedcstLerms, Infact, these terms are so broad .that;:if,thecriterioiIi-'ofpatentability. is notleft open, to the individual investigator; a compietelypreppsteroussi-tuationmust arise. r shall; cite one specific example: According .totne. present regu­lations, .. any inveILtion·.OT,dLscovery' (within- the·hroad,de:fiJ}itiQu .··of, PHS '(3945)

JOHr( ,G;-W:EJ:.LES,;:Head, Inclustria,Z,Ecooomio8 Divi,sion.

vv_

would-eppeaeto :preseiltthe':':Federa.l Government'witbmanYdistaSteful and dtf­ficqlt _declstons which.. ~ould, be _better left to the prtvade sector if· appropriatemechaiiisms can-be developed;:' . , ' . ,

Bmcerely,

S~A:kFORD.UNIVER,SI~,~;'_,~' i

DEPARTMENTOFCHEMISTRY,.,Stwnfor.il, OaUf.,August:30,1965,.

Hen. JOHN'L. MCCLELLAN, -,.;,;Senate: SuboO'Jn.f1'id,ttee on Patents;U.S. Senate, Washington, D.O.

1fyDEAR'SEraToR MCCLELLAN: Lhope thattt. ts.notvettoo Iateto setid.rousome COillIIl:Bn,ts on your proposed bill, S. 1809. Unfortunately,' the 'complete.textof this bill "reached me only- recently. I .am sure thaf'youhavereceived,nurn'er­ous communications on the SUbject and I would like. 00'limit myselfito only· three 'points which have some bearing on my professional competence. As a universityprofessor, I have published several 'woks and' well over 500 scientific articlesin; :th~ field: of" organic, .chemietry, largely onhealth-related subjects, an:d overhalf of this work has been supported partly: or com'pletelx by grants from~~oGovernment agencies (National Institutes: of Health ,and the National -Bcienee'Foundation). - 1 have also had, and);'!'t:i)) have, intimate connections with thepharmaceutical, in,cl:ustry~haviIlg been a research chemist or director in two suchcompani,es 'p~~()rto,rii,y acacle~ic-~ft.!eer, and currently serving on the board ofdir~to.rsrO'f, 'one 'or ihe'se'\Syilte"x Gorp.) . However, none of my university re­search "is~' currently' being 'performed in collaboration" with a,Il¥ ph,ar,nt~utical

~(}mpany\ ,',' ,',', "" ,,' " , " ,", .. ', ", '" '" , ,,'';' On 'the -wholerLam 'veryfavorably'~mpr~sse9-,w~tp:yourbill:and,am largely'in"­agreement with what you are tryingtJ'accomplish:' There 'are three points,however; 'where',!' believe, thatt.modtflcatfons: will: strengthen the, btlfandbe ofulttmate advantage'tothe-publfe; .: ,:' ,:' ":',:>.-,, ..' "

1. You draw no distinction between' contracts- andc-eeeerch.rgrants.. -rn.unt­versities, .and- especially in -health-related areas, virtually .all- of the Governmentsupport is obtained in .theform: of 'grants' rather tthan contracts.: :Iri'seetiOh 3(b) (1); your, bfl.lt requlresvthe prompt .and .full' disclosure by the-contractor' tothat agency Of: aily:.i:nventioll,'made. in .the course of or under the: contract,' :

',The'NIH has.ulreadjcbeen operating theoretically under .thtsassumptton.under:their revised patent policy. In: connection, with.' tts, publication In the; :FederalRegister, I wrote .to the 'Surgeon- General-on July 24, :1963,: tndtcatlng.thutauch a'requirement is 'totanv.unreansttc since it cannot 'be 'ccmpfied.withund cannot' beenforced..... Many .. of·the. Comments in' that letter, .(especially, pi)'; 2':4)', .of which' Iam' enclosing- a copy, also apply to secttong (b) (1) OfCYour:bill:(every;university"scientist working underpartial Government support is a "contractcr'ttand I b,e­Iteva that an appropriate modification mvthe wording should be,~nis,idered.Other, than acknowledging"receipt of that ,letter,"Lnever:did 'receive 'any lrepl~

from the Surgeon General, Senator" Wayne Morse, with.wlrom -IoJic'e'h~d';somepersonalvdtacuaelon-durlng-a plane ·trip on tpe, general, 'subjed'of,'Governmentsu:ppoot~,'of academic' 'research;' 'had this letteraoo,some.;related material re­published ,in:the,COIllgressional 'Record (August 6.i1963/pp.1343~13440,and

especially'pp:l:343943440); . .2.. IIi··SectiOIi,'4 (R) (2), your btureseeves- princ1pa1or 'exclustve .rights' to the:

Govern:mentln'any.<invention· made in the field ofpubltc ,he'O]t11-."Wijile -r sym-.'."\ pathlsewltf the motive, the result of thisclause:-:-if p~rJI.litted tor~mahl-:-will'i\ havepreclsely ,the opposite effect in that it will:be; to the d,i,sadvantage'of thetax-:~ pB:yingpliblic.. I am making his rather blunt statement jor the following reasolls:t To 'my knowledge; during the past .10 years 'probably not a' single important. drug .has been developeddn an AmericanGovernment orrmive,rSi~Y:laboratory

and'broughttoapI>roved',human use throughjhe 'FDA by suchaIi.'flgen~or,university. Under present .F])A regulationS. (with which I agree), the possi­bility .of SUCh', an event. 'happening bB(!0mes, Yirtuallyzero. 1 would estimatetbat,£,n the, ca-se of a new-drug, it wOi1l1Q.'ccost an absolute minimum-of ha:1f" amllldon dollars; and-frequently several'mlllloris, t6"g'atisfy all the<FDA require­ments for human use and for manufacture. No university has such money avail-

'.OARL DJERASS:I; :prajes'sOr ofPhetnistry.

by some ull'inf{)rmed,}n4'iyi~ual, because, it 'is p09r'adrnin'istration. and. i,lle1l:lge~

ttve procedure .to haVe,"a ,~egUil:!-tion on tl,le1hooks which .no one c:an_,foilqW;·:~,lf~only ,P1J1'V:QseI.: can see in it j~ .that. it now gives the ",f:lurgeon 'General fl-mea,n~'~ttEl~minatillga,gJ.'~ntin,"midair""by poiJ1tiIlg.ou~t,hat a .gi'Wltee, has uo:t'fon,oW~an admmisura'mve regula'tioJ,1." ' :',,' , ,,' ,,' ,:'

I recommend that ifu.e patent 'POlicy be simpli1ied and adapted to the de factosttuation :

(a ) No, patentsare, 'to be :filed fby any NIH grantee unless he' proceeds In themanner outlined in the oreeent patent policy (se'C'.505 ( par. A).

(b) But" if .bhe NiJiH, grantee does, not intend to file a patent 'application, nospecific report should be required of hdrn, his .annual progress report and, 'theeventualjnrbltcatdons -representtng .sufficfent evidence that he .has. complied withthe-spirit in whichth~grantwas'made.

Yours sincerely, ' ,

S.T~T~~~:Nt:'QF,', 'ItO~'~R~, ,0. ELJ;lE;aFi#~,':

Mr. Chairman and diatingutshed memberaof fhe subcommittee, my name isRoibertC. El:derfl,eld ,and. I appear be~ore you-today solely as anlndtvidual vital1~inter~s~edintl1e~,:ut~J:eap{}l~cations:of,s~ch discov,eriesJllld invelltions as may ~forthcoming" from', our" scientific and" technological' -communtty-to 'the',gener~l

w:elfareoft?epeople,ofthe:Unit~,States.". " .C".-" ",,<~,: ," ".t am Ii .professor',of,'c~emfstry ~.'t 'the University ofMicJiigaI;L;~:ainemMr.of1tlle

Nat~ohal'Ac,a~e:my,ofSciences, 9. form~l" chai-l-nl,an of,th~:Division 9:f ()helQ.is~J;Yand' :Chetnte~l Te,chnolOgy- of Jh~. Natiollal :ResearchCOU'nciJ~Nanonat' Acaden;ty'of Sctericea-a'member-or the Board ofDfreetcra' of-the Anie~ic'an9heirliCalSoci'ettll~d, chairman of the .~merican,Chemical SocietY,BOard'C0nilnittees oflEduca,tionand:13tllde~ts;:Gr,ant~andFello-wships,'and, Int~rnfl~io;n~.l'.Ac,tivi~es>;In. the 'pastT 'have',', sElrrec1',on"various,' -advlscrv' 'p-anels""and;'comini~t~es':?f_the.- Nationa}I,n~ti,t~tes'of Heal~"llIld,am' Pl'e~'ently·'ser:v-ingon~~ree "~dv-~s,or~ ,bOards, to' the,Dep:,tr~nient';Of'the 'A:rmY/:;J"anith~'author ,or coauth6'rof"$ome,290 sclentifiepapers' and -the ,holder.of s()m~. ,14'·pat~nts'?-s.~igned '.t9 b?th'pl:'ivaw' industry andvarious agencies, of,the (}(we.rIlment;') :Ihave?lo"90nnection 'with :any' tnduatrfalorganization:in~erestedinthe'beiidinglegis13tioir.-,', ". ' ~;J.:

(I'hree bills are before yolir '~'?mmitt~e",f~r,consideration:.S.1899;'introduced by-Senator.Long : 8;1809, Introduced-by senator. McClellan ;·'and-S..789,'-mtroducedbySenaj;{}rSaltonstalL;ol understalld a-four-th bill, ,8.2326, introduced hY',8eIlatorDirksen;: may alsobe. considered 'by,the' subcommlttee.. ,'While I.' have-not .studiedthis bill in'de~ll'il;, :,it;,:',~p~e~~s to,be- 'In. line 'with; the: philosophy, expressed in': ll1Ystatement. ".":,":~',<;'" , ' " ',':

'Previous' testimony has amply documented" the arguments. against K, 1899,·and-1' do not propose.to.belaborathese.L'I. Intend.ctherefore, to confine my remarks toS. 1809 and S. 789. Furthermore, I shall limit my remarka-torthe.uppltcattonof the' results of -fundamental- research subsidized in,whole or Inpa.rt.by Federalfunds-In: the unlverstttes of.the country to' the generalbenefit. of-the people of 'theUnited States. '. ,

Previous witnesses before you have emphasized the costand the.flnancial.cisksinvolved in the reduction of a laboratory "discovery or .Invention". to practice or;in other .words; "development costs';' in relation to "research.costs,". I should liketo explore this phase of the problem: a bit further with particular emphasis onmatters affecting the public health, welfare, and safety of the Amerteanpeople.I believe .tfiat a strong case can be, made for the argument that cooperation be­tween- university scientists and. industry is capable 'of returning high .yields forthe benefit of the publicin these areas.

Let, US .constder briefly tbe htstorvor. chloramphenicol' ("Chloromycetin'~)"'as aprime example of the fruits .of university-industry collaboration with .resultanttremendous benefits to manknd. This material is one of the major, antibioticsuseful in treatment of typhoid .fever, ,typhus, undulanb.fever, and-many other-infectdcns. In 1947,Paul':BprJrhQ-Ider, then: professor of "microbiology' at YaleUniversity, working ,under., a .pharmaceutical.jcompany gJ;,ant",collected,'a:, soilsample in Venezuela, cultured' this material, and sent it to the company forfurther testing. The powerful therapeutic activity of the antibiotic constituentwas then discovered. This was followed by extensive development work at the

IJ

,~TArnj'oRD. UNI'VERSITY;DEPARTMENT' 'OF CHEMISTRY.

Sf.ufo/d, Calif., July S4, 1963.

V~ ....

Is.done by a drug firm.. "TlliS assumption Is well foWi4ed,!being, based on my yearsof academic research.where I,was-interested in'having eertatn, suostanccs. exposedto awidepharma-cological'screeningmid found-no GoverlJ;rnent, or. universitylaboratory.equlpped.to :do so. Lstall xemember filing. aJ;lNIf;[aPPli.cation morethan :10,rears agoon naturat producte from South. Alllerican, plants Where theNIH study section inquired where the bdclogtcal. ,'ScreeI,ling, would. be .done. Iind1eated: that I planned .toecndtnesubstances to vartoue drug, firms such asEli ,LillYi(a-company with whom. Lhad.no formalconnectdon whatsoever at thattim,e,not;e'y~nasaconsultant)andthis reply was eonetdered.entrrelz satisfactoryhY the.,N:IH at that: thne..; 1fT Were to attempt to .dothie.now, -Lwould probablyencounter greatcli:fIiculty .tn locating 'aJ1y ,fir'lll that.would, 'l;le Interested in carrYingout.such acreentng. '; .;: ' ,,' , ''''' " , ,', .':

Why c,a;ll~:!'Sl1M sCJ:eening,p-ot:Wd.olle .In unfverstty.Iaboratories ? It is 'possibleto find ,myes:Ugators -.in:Pll,arIl\acology. departments. of certain medical schoolswho mi~t~be, inte!:e13te.d,-iIl,testiIl-g~ompounds for a very specific type of' bio­log~ca(action,-that 'they happen to be .inte~ested: )J;l, but I know ()f no suchdepartment in. the, pnite.d. ,Sta~ef3:or.elsewliere"wherE!'~'a:broad"1?iolo~ical screen­lng .ror a wide.:vari~ty 9f aeuvtues.fs ,perforIlleq",ln"fa-c;t, ma:nY,9;f.the'pestpharmacology departments In !Uedic~l}~choql?~pJ?sideLf3uc~ workbeneath tJh~mand are, much,more Interested in s,tu,dying the -mechanism of..actiollcn: jcnowndrugsor actually. perfo~ming,bioc:b,elllieal.research. Tllere., is,llothin,g, wronewi,th this;, sinces1l0P-'Y(}r:~is _v~ry importa~t,:Lb1-!t Jt {IO,eE>' Il,0£ a.n$we~; the.questdonof. where suca screentna.cen oe ~rJorn:L~d;JI:1 3;(~ivers!t,Y.:-. " .. ' .... "... " <:

whatabout. Goverl1ill.ell't~raooratonesj "Agaiuf .screenlng for certain ,activitiesca~ .be done ill c~rtainQo!"eruniep~: Iffb'(>r~tq#es;, but .general pharm,a~pl()iicalscr~~~ng,for '1111, types .. ,()f .pot~nti,all:v iJlt~r~l:>tillg,:bio~o~cal and"bHcter~ologicll~llQtiyi,ties~s .not aV~i~.a:b).~: in any, Government Iaboratorv.. If. it were, I would.bev~rY:"in~:r~tedto:~~.rIl.()f,it~·'c·;~.lbqt;IJtlQ,y~rs ago, .while ,I was 3;. pro~~sor .atWllyng~,i;-l:i~.Uniy,e,rs~o/",IsJl'~i:t~d,various compoundaro the NIH for testing,in; certalu, hormone flSf;ay~,(a. specialized and ve.-J:Y .limitep. JYP~ .or activity),. andsome. of, the,r,esu1.t~ .hllve.!',c,ome. In tome. pnly ,du~ing 'thy, ~'af',lt.2 rears. Fi"a:q.kly,

,I.(had.already rorgotten.that I had. ever; s1.1;bmittedthese;,s~~stances. I.'am.notcitil;tg this example as. a, criticism of the, ~IH. .On •the.cQntrary, the NIH. isfUlfilling its real mandate, ve;ry.effectivyly"a~4,is playingan,abSol~t.elY .Indispena­able role in supporting most (}f:tll~ health~,r,~lated b~sic' research. inAm~ri.canuntverstttcs, . Furthermore; a great deal. cfIiigh-caliber intralll1J:ral, research. isalso being performed: ,by scientists at illle.NIH.. General, Pl1armacological' screen­big, however.. is not one ?ttl:u':l functioris.,of the:N:IH-and copsequently is notdone there to any extent, at teast 'as Jar a's I or many of my university .cclleaguesare aware.' .," ',; ',,:,h',', "',,".:",':"; ...', . ',,'"

,J;have the impression that the new .NIH patent regulationa have vi~·tuallydried.up this type of collaborative research 'between academic chemists and tihe pharma~

cologtcal Iaboratortes of drug firms. Lbelleve that this Is a pity, because thereis little doubt that worthwhile drugs .come. out of such collaboration and thatthe. one Who..suffers .ultimately, .... ~s:' .tne patient....~.The present provision .tsec.4 (a) (2) ) ,of: ,S~ 1809 Is unlikely to change .thts .stateor affairs,

Yours sincerely, ' ' . ..,'OAltL, DJERAs.~I"P.rof6ssorof Ohemistry.

Dr; ',LUTHER :TERRY,Surge,on, .~eneral, ]Jepartment of 'Health, Education, and Welfare, U,S, Pub­

lie Hea,lth Serv'ice, Bethesda, 111d.DEAR DR-',t.:rER-Ry::In your memorandum of JJlUe 12, 1963",addressed. tQ'all

NIH.gl"antees, you invited· views and,comments on the proposed research proj~

ect grant regulatIons which.. appeared in the, Federal Register in early June.This le:t~.er, encompasses both. comments and criticism onothe present patentp()licyan<1Itrust that:it:reacl1e~ you before· the,expiration of the- 60-daydeadline~ ..... .... ""',,,. .' '.,;.,

At the ,'outset, I wish. to emp4fl,size that I'am. discussing only research grantsan,d not ~,eseilrch.,contractl3.".Frir~llermore, I. would like to state that I amin,. eQ:p.1plete;:.,agreePH~ntwitb: the'bask" premise .. oftl1e .~IH. pa,tent .po,licy;namely, that 'inventions made under partial or, total NIH grant support should

,,!:Vj~~!:~S'j ...vt.~t~l ~,'" ,.I:]:n~~~:T' .:rVJJ~'(.~~ Q~M-

That secti(,m'4«(t)2,w~Lcll"applies",supstantiallYthe same restrictions to theareapf ,'~public healtl1,'_yV~J+~re,,'and safety" as are contained throughout theLo'n.g bill (S. 1899), be modified so as to provide in positi;V:,e language adequateincentive .to. resto;rethe pa,stm()st ,fruitful collaboration between tile uniyersityscientists and industry which, a~pr:es~rithas largely vanisheO-,. SnclL a9ti()Il, couldnet but be, Illo,st .eff~tive il1niakiIl.ga'Vailal;lIe to the, J(u~lfc~a.t,large the ben~fitsaccrp-'in~ froW the,~e~vy investmelit,of'PUblic ,'f~n9-s ,i.h';uatters, of Pllbl~~ 'heaU.h,w"elfaFe.alld!.tif~~y~ ':, ," ,,'," "",..:, ''' ,.,.",',' " ',.'_J;',::; ,',"", ,"",",<'"

',"SPecificallY I would suggest that a given pharmaceuttcat 'fir-m 'be granted anexclusive license under either NIH-owned patents 6r:,wE#erab-I,y .p~tent.rightsr~leased ,bY'the ,q:overnment, .aomrrusrration by tile. ~ante~'Unife~sitiesthem-:selveso-n a:new agenc forn mutually agreed on term of'yea,rs fbI' recognition ofits considerable .colltribution, tothe research, and,develop.rnent efl:ort involved-aewen as for the risk' of its private.capita~· In return the 'co:inPan'Y should useItabest effortatcmake such anagen'tpr9::mPtly'av~Ua~~~,~o'~;bJ~"JlllbUc',ata reason­able .costc'omme:p.s:urate with the:"firm's"illve;3tment _of cai;llta-li, facilities.,'andkriow~how.""",:.", . . ......"" c. ."","," :"",' ".'.,,' '. '. '. ..

In;.dI~cussingsuch·a policy· with my colleagues' i'find' dlfferences of opinionas to tne duration of .theexcluslve'Iicense. :A. good 'bit depends on,the base pOint.If the period is calculated froIlithe time a gfven'drug is available for the marketI .would think a period of. the, order of 5 'years would 'accompltsh the objective.If it Is based on the' date of issueof -the patent possibly 10 years should b~_'con,;,

sidered.. The l~yea1." -term 8eem~ reasonable if it Is kept in mind. tlJ.~t some 5years normally elapse between the' discovery of a new agent and its availabilityto the public. The new'FDA'r'ules: alone require some-S years of clinical exje-:rience with .an age:o-t unuceciose surveillance prior to its approval.

The dlspositfon of "offshoot" -patents ' arising from efforts ~y the ~l'm;a,n1l,

financed . exclusively by. the ,firm during. the; course of the, developmenttwork'Yarrant~"..consideration~· .'M~' fee~iIlg is'.that tq.ese .,shouleJ., remarntne .prope:rtY:ofthefirll1;;,.. -' ...'.', .' ,.,'

Adequate safeguards to Insureprompt performance of. the: development workand to protect the public from exhorbltant prices should be part of the' pcensinga~eemellt.,Theseare pr()b.ablY:.lllet"by .the."ma,rch-in",pr()Vi~ioll;3 o,~ th~;,b.ins.-a,s:theyst~nd.,· , ',",',"..' "."", "", ."";'>'.:," ....•... ,.. ".,----

It is 'also important that all contract arrangements 'be concluded or 'clearlyunderstood in advance ofaD.y partfci:p~t~oil ~y'aftrID;' . < • ,,' '_'i', " .' ."

, Sena,t()r, galtonstall's bill (8.789) ~ccompli~hes eEisentialIY,these" objecuves.However; j belteve, as indicated, above, t1l~t the, 3 years allowed for placing anew product in commercial use' As.gi,,ven., in. section 6 is .too short and .should.heroughlydoubled atleast,i-n, the ,case o:e:iie;w: t"Per~peutic 'agents;,. ..' .'

From 1959: to 1964th~nuinh~r''Of'J]UljO~ ne:W 'chemicals Introduced yearly,;,asprescription drug productsdecline:(i,frOIn. 63: .to 17. ,;WhH~ during the sametime the aggregate yearly research' and development expenditures of the pharma­ce,utkal fnduetrv increased from about 19,0million, to about 3.00 million. Clearlythis portrays a dramatic jdctureorIncreased costa 'in .research and development,¥,tth' a corresponding decline in' major new product introductions' and .under~

scores theneed for a reasonable degree of market e.x.clusivi,ty;'It has also been estimated that .the time ... spent on 4evelopin~ jpst 'one new,

efficient drug, if only one person were .Involved in ,allstu{iy an(l,-re~eareh, wouldrequire 19 working years 01'58,000 hours of the worker's 'Life. 'This work ~-nd

the attendant expenses in. many cases .is., completely lost if. the: safety .and eJficacyor the d~.~K is not demonstratedto tl;lE!.:soDlplete .,sa~isfaG:tion. ()f. tb·e, Fo6(1.and,Dl'ug,Adi:t;iinistratj,on. .., . " ..,.,' _ . .. '

Leubmtt.fhat merely an Investment of this ma:~1tude til. development 9f asingle drug ,whWh, is,cover,(!Cl.p,y, ,a. Government-owned patent provides amplejustification for limited 'exclusi,Ye,rprivile..ges roru coorerauug company withoutconaldertng. the higll.fail~rerate in the developmeritcof chemlcala into 'usefuldrugs. '1'4e nttemattve is for. .Oovemment.toassume these .development .costs.Otherwiseadvances .made possible by:eecdE!rally. sponsoredresearch Will):~e:ruai;:rl '.on:laboratory shelves Indeflnltely. .. "';:"_ .",., . ',.>.,', " .

~n 'conelusiQu, I ,.should:'lilt;e, t(}expreSs 'Ill'Y,:;tp:preci~,ti()J:l,-f.<?r,.thi's" oppor:tllpit y,of pre,seIltiIlg my,Yi~ws. '

,\

mustLe ,reported immediately. to .the .Burgeon General, When this. is. done,the Inveetdgator , "reG.eiv,e,s:·)JY;; return ,mail an outline for invention report,consisting of js ouesttoas and, included as .exhlbit 2 in the Grants Manual. Ipersonallv-have-reeetved, such-a questionnaire. If I were to. answer :it.hap~

hazardlY",l could do so in half a day; if I were-to answer Lt in '3: .reeuy propermanner,it would take several days. Only afterthe Investigator has filled out thisquestionnaire and returned it to the NIHwilL.the legal staff: Qtthe NUldecide whether this material,ispatentable,.regardless,of'whetller tl1~:' investigatorwishes to take out a patent or even whether, he considers the niatertat patentable.

I maintain that ,this procedure is not enforceable and would have pr.epos-teroU3consequences -if any' attempt were made toe~force,jt.. ,Of .:t!he several thousandNIIH grants, at 'least 50 percent are certain-to contadn- some invention ,o'r dis­ccvery falllng wbthln the definition of ,NIH form PHS 3945. l\iaillyof the, NIHgrants Will contain :seve~a'1-such dnventfons or: 'discoveries. Among the grantsin 'chemistry' or !l:lioehemistry,: I,would .estimate .that over ~O per-cent "faH:'Y'ith'inthis category. Any,pa:t~:utlfJ--~yerwiH.oonflrm. t,hat,th~.ques'tion of "paterrtn­bility", 18 ve-ry. diffict1'l!t,,_~o(all~wer,aIl;d chat-the .answer ).1('!ip:end's: la-l'gely onone'sat1t~tu!ie:, "Id::pneis illter~,t~c}:in,,:securing '~" patent, a patent. attOl:n'ey, c~I;l makea-good: case.. t;ha:tf..l:!-;·;.giveuj ,sl,libject, i'8 patentabde.. while"the ,exaet"rererse, can, 'beB,~omJplished"ir:f .theattorneyis trying ,t()Vr:o,ve that a give ll,subject. is not ,patent­able. One 'can estimate 'cO-llser-vatiyelw, tR-llt"of:aHcllemicll'I,pa,tell,ts .Issued yearlyby the P ...S;!PatentOffi~e,,50 to ,70 .percent .w()uI~;'be,4~cl~:red trivand if carr-ledthrough: thecoul'ts~th,e,reason being,. ttr~ise-Iy: ... ~l1e".u.n~rtaJnty, 'Y'hi-eh .. f:!xi,sts~b.out:,tb,e:definHion: of a: r~l'l'l invention. ,1. wonder whether .. the.Surgeon Generalis;.aware. o!f .thef{1.p-t .that, .'many: paten~t{1.prplicati-on.s, are. file?lr :;a~l:l patents, gruntedtn :thech~mi:cal·:andp~lllac.eu,tical:areas, that do, net, Include. 3,n:LyexperimJl1llml,W'Ol'k ~t :aJ,I-----:-;all.of:"t'4e. ;~vor~ ;011:Jhe ,-j.ny:eAti()'4.or.d~oy~:r;y:,@ing:",pa,perwor~";.~?

tpgt sucu oatentssare ~nti:L:~ly Iegaf.underour ,pr,e'13,en:t~'~te:W~·.··, .. ,! '; ., f':,,',"' .• ;_

With" iPl:1is·.-i¢Orma,pOll,; ~,s:iPB,'~]tgr~und,:}Iperfo-rp?-~:~{: f()n~'wrin.g .expertment::"..r '~e~ecte(t ..at random -,ollly,: one Issue. of 'a;.'cp-mlli~al, j-0llr:na!,,-,,":,the.·April ,1.~?issue 'of: 1J~~: Jpurna,l; ;o;f iQrganicl(Jl:1emi~t!y~anclthe:n'rpi-G#:gd: o~,t all,J~e :1l.rt~des

)XhJ¢b. acknowledged. N~'MJgrant, ,ISUP,pop't. There. were:(17: :sU'~h::'ar:tieles In, theApril issue. Of these, I 'could. select conly'theee (!J?P,; !)'QO,;;19'T:5,:;a:U<l1~6J: :wl;l,richI·.' could (l~finitely.,say. ;qj,d .not, contain. patel1ta'ble:;;ID:a;te.r;~al. ;,~'k~_ :tl:o;~,'9thgr.'in­stances., (PP:.,': 9i?~" ,114:5,,'. and. ·.t128 ):,.an,:e;x:c.ell~:q,t. ;eas~i :c:p'llIq.,: ibedll.adefor..:pa<tell,t~ab:iHty,:Including. a; statement of ,utility.-,. Of" '~e;reJI:l;?,-ining: it articles, in',7:,' (pp:.92?,; .928\' 9:42, 9:64; 1~" :11Q8,. and, 1'11,~) a-good, case;.could 'be-made >,for,patent-ability and-in 4 (PP..'lQ04, 1015, JJ)3'('",aIlI11041Laweakcase.. ' .. ,

Acq-ording. to. bhepresent NI'H:~·ules,·14or -these ,17: investigators should havefiled an invention !:r;~cC!r(L:arid.sUi~sequ:ell'tl'Y,:allswel"~d the 18. questdons of"theoutline :for:.tnventton.. ceports. . Rec:kpu,?d :C'onser,vatiyely in:man-hours, ..this'would require Ito 2 months. But the real work would start only when theNIH 'legal staff -rece1-ve:d:-thesedocume::nts.:,an{lstarted wading through them.I would estimate that this experiment would have to be multiplied at leastseveral.diundredlrold each year 'to cover, all relevant-grants and that the,NIHwould 'require. ,9. legal staff which would ha ve ·to be 'muchlarger than theexasntn­Ing staff of the U.R Patent Office. It would also involve several Inmdred.man­years of investigators' 't-ime tohandle all the reports, answers, etc., and tt.shouldbe remembered that the most productive 'lnvestdgutors-arecthose whlbh severalcollaborators, who very Ukely'have many such invention reports each year atvarious stages olf processing.

To complete the aoove-cutunetsman experdment from the April 1963' issue of'., the-Journal ,of OrganlcOhemistry, 'I .recommend ·thatthe,Snrgeon General put\ a memlberof his 'staff on the jQlbof,check-ing.the,17grantstodetel'uninewhether\any,juvention statements have been· filed. The cha'lloos; are· ex-eellent that hetvill find none. The ch'ances are poor that he willtfind 2 or:'3,und the ,probrubHityf~f infini-tesimal 'thathe-wil1 find eveu1(f-...:.let a'lone the ex'pe-rimentaHy determined14- :whi'C'h-would':herequired.'

\Doe's ·this meari,,:thav.'all ,'of these.··investiga'tor's'ar-e dishonest, that they arens\ng NFH funds with.out fulfilling 'regu~ations, 'that'they are' !flUng patenlts sur­reppitiouS'lyft' Tlhe' anSw'er'4.s,'th'at·'the' presenlt patent· poliey 1's imprJ;tctical andune1J,,forc.eaJble Ibecaus'e'i-t, ca,nnot :bepractic.ed~either iby the investigators (whowoU'ld' end :up 'having 'little' time for'rese'arch·j1f they,fQlllowed lit-erally the patentregWatiorrs),'or!by, the 'NIifI"'(IWhich does';not have -even afraetiouofthe legalstaff\ ne~ss,ary'to:"handle'hundreds. 'of' such, reportsai:mu~UY).. I ·.··coll'clude.thel'ei;fore,·that ··the~P!l't-ent·.,poHcy; Should !be.changed, before: :au· uproar is raised

GOVERNMENT PATENT POLICY'l'/:::n' "-~::",i J:')

691the contractor of tbtle in such a case. Suppose, further, that a contractorhas: 'spent 'hundreds of 'thousands: ,of' •.• dollars,;·of'/his.',owu;- money .tndevelopdngran -idea: practically -to neductlon -topraetlcerand then usea.Ita for- fhe rtret-tnnein _connection with,a-$50,OOO;'c'ontract;':The-"contractor icou,ld,:perhapIS,· very,eaenv-haveavomed ustng-vthe idea;J:mt,.wishing::tooooperate: to; the maximumwlthvthe 'Government -he-has applied, his; 'beet , technology: ill; order to 'give _th~:

agency: involved; the-'best possible tsolutdon .eotrs problemv r.Is. it,.fair- _in.isJ.l.ch,a;easecthat the contractor 'lose: titlEfh\'W,e believe; nok;·,Bence;;/we; 'beIi~Y:-e"t,4.at,subject inventions should-be Itrnlted: to conceptions. "'If,; .onrevjew, Of this inJ.l(ltter;his believed' that, some, reductions to 'practice .should-be. included ,.within,;thedeflnitlon.r we respectfully 'submit' that exceptlons should.be, made-when. suitableeq.riities:arepresent-,.>.,':"'>,! i<,·--",; " ,.,,;

Referring to section 3 (:b): (5) j,the determine.tlon of- .reasonable terms, ~lld;con~;dlttons end.. perhaps.tthe grant of .compulsory Itcenses .ts ;placed in th.e;:handsor.tne agency involved. 'Lt, seems to us .that. it may: be advantageous :fro:m,itb,~iOovemment'a.stanopotnt as. well, as ',f.r:OlU- the: ,public -benent potnc or "yil?W::tl\,~,~the: agency head 'do no more chan supervise the, grant-of the Itcensea orJJe -ayailjable as .a-vreferee.vvIn this manner,-theburden,,:ofnego't.iating Ilcenses .. would,;'be ,transferred from the agency,head,tQ'thecontractor,in.an,area''o/llere we.be-,lieve: the contractor wouldbemore than happy.coassume the::burde.l1,.an4:\fi4~!"ethe, agency head .Ia usually, not !bestable: tI?, det~rJ;llii.ne':fair terms '[Lnd:.cc.nditip~Ii!"

T,here:is' no such thinginthe;a-rea:of,~icensingof.the·useof~ft;'l:lcdarliterms .and,conditions except in very limited situations.::,There ~.s."no,s1.IlJstitute,for;d~pth

of; experience in a field tQ'appre-ciatt}wha,tis::fail' and w:or~llble a1l4:,Wh,atis'not.. For example, -what.js.a fau-u-ate of ,r.oy,alty?,'Wlla-t:;i§ the proper baseto which the rate, ,is'applied'? Should it be tAe:eIiti.re"apPllrtj..tus ,fUl'nishedor only the proportlonate jpart covered jby the,,~m;ention?: What should bedone; .about .information,. grant. 'backs .oz rights, possessed .by:the Iicensee,. 'andimprovements? Should the; Iicensee or the licensor be requtred to police thepatentor patents involved? .On what grounds should jthe )icensee,or licensorbe.perrmbted to terminate the agreeIIlen;,t? . 'Should, the Ilc;ensee.bave.:theright .togrant sublicenses ? . Should the nceneeebe ;,:r:,equil',ed to ~f"er,qise;i.his::l:ie,st effortsin connection with the subject matter in order to malntatnthe licensg:?,., ,:Sh(yqld'the license be exclusive or nonexclusive? 'In almost ev~ry"situ,,a}ion,;the de-cision must be made ona<:as~hy-casebasts. -. . "

Re.ferring to section '. B:(I~J, (8)-" we, .nota that ,th~re'i~,)lOeXCUsewhatsoeverpermitted flor failin;g promptlY,and fully to report an invention. In view of theserious 'penalty, Le., forfeit~,re:..ipV:-o:lved:andbepause reasonable men can welldiffer on reasonable time for reporting as well as whether reporting is re­quired, we would urge insertion of,t:h,e, words "In bad faith." In support ofthe above suggestion, it is noted that concepti-ons and first actual reductionsto practice form the basis ror.reportlng of inventions. As' a quick glance throughboard of, Interference and court decisions on InterferencesitlJ-,.a,ti0llS wip dis~

close, it is often diftif:ult to. determil1'e,When,a,c,once.ptionlla8:",b,e~:t;l;"wade andwhen an actual reduction to- practice has been made. Many interferences andcourt-cases hmge on these determlnatlons andr-sinee thereds.iusually, Invol vedanquestlon. .or. jtidgmentcwiielrrrespect tovwhlchc attcrneys-.wm..differ, -it'.i:s.'believed that a sort of "rille of reason" should' be applied in.' ehts .area .an.(j;'that severe penalties should noc be.renrorcec unless an element of fraud ispresent. . :., ,

Referrmg. .'to-:section:;4{a), '. and-more. 'p'3J,'ticularly,:to ::the~:.criteri-a. .ddentlfledas' jnstifyiiJ.g the. taldngtof.prdnclpal. rights,' .thereare, certain ambigui.ties Or' atleast 'certain' degrees' of, indefiniteness which, ~n:·our"opinion;,are·1ikely;:to cause.future problems. .i : ,:',

Referring to subparagraph (1), it wouldseem to us ofdoubtful value' for. .theGovernment to acqufre title to all inventions .made. merely, -because the Inventtonmay be required .for use' by. governmental-regulations '01' the public may become,a. user, In this connection, wewould-di~tillguish,,'fo1.·:example, between-a-con­tract havlng as an object animprovement or cost .reduotlon or some other minormodlflcation of a well-known drug.suchas aspirin as dfsttngulshed from researchdirected-to a algniflcantly important medical, advance) such .as .n cancer cure;The; same approach is applicable to subparagraph, {~).;:whereyoumight dlstln­guish between an.hnprovement In.statr .treadstominlmlze the-danger ot slipping,as' compared wttha device for .absolutely preventirrgi colIisioI;ls,1:letween, vehicles«To. soften the. impact: onconnnceors withoutdisadvantaging.jthe 'pubUc; both .of

:;, '",: ',' .... ' ...... :,. ;', .C··C .. ',: ,'. ,;':

C4zp.pany as w~il as ~y Investment of capital in the :hljg~ v,a~s~i:ld"other:,eqUiDmentnec,e,s,sa,ryfor t:t1-e ~omme.rci::tlproduc#oIi. of a drug by fermentati()n .arid;of course,Iiot,.',u,van~,ble~t:Dlos~,llnivers,ities. ',Later the chemical 'structure and a chemtealmethod for synthesizing chloramphenicol'commercially.wgl.'e '<iiscd:v¢red" at':thecompany. Not only was this the first antibiotic produced by ehemical'me~hodsrather than by fermentation, but the chemical work enabledthe Inltfal' costa ofpreparing this lifesavillg drug to be reduced greatly. ThIs is a prime example ofbeneficial cooperation of university personnel. with industry.. If Dr.. Burkholderhadhada Government grant in 1947 and the restric'tions of S~189:9: and.s~1809

tn .tlietr present fo~were in force this very important therapeutic agent .mightnot have been 'made available to the public. . . . '., .' ..... '. '., , .. '

Another 'example of university-industry ,col.l3,;b,oratio~, pn be foUflcl in thepioneering drug diphenhydramine ("Benadryl',}.','·"The 'cnenncat was preparedby an academic group atJhe.University of Cincinnati under DrrGeorge-Rfeveschland was sent to a pharmaceutical company for testing as an antispasmodic.During the general testing. of the compound, its very potent antihistaminicactivity was discovered. Today thisdrugTs considered to 'be the "father" of theantihistamines and sHIl,one of the most, :pot~n~, .aP,9-.,wigely used of this class.Once again,a most unusual drug might have been' lost without Industry-unlversttycollaboratton..; "'..".:.,' .c:,:-;..' .:;': ';'.- >,.,':';''''''.-.' .:--',:' ."." '.':.. .........: ... ' .':.

Literally-tens. of thousands .or diabetics.are alive today because .• or the.av~il­

ability, of Insultn., ,.fir~t discovered ·hy":F:~ederick BaIltiIlg.·,a~:,.~he:U:IlJversity :pf'J;Qr:Qllto and made-avajlable ;t~"tl:L,e:Pl1blic;.~b;y cp~l~b()ratiqll,"o/it.h,aI\, :A1l1epic;aIldrughouse. . ,;,"J,;:;:->':"'.:,,';,':' "C',;,i':": ,:.',;,'

.asone .flnal eXfiJ.Uple,CJ:ne:can, .clte the spectlfcularlYUppressiye record. ;'O,f theso-called: ccrtdcal.diormonee : AQTIlisolateqbY Li. at Daltrornta : cortisone by:K:(jmc.lall.at the: Mayo,:F:0undati9n,tQ mentton-two. .' Through industry eollabora­tton not oIllY these.h.ut-improv:e,q, dJ:ugs:base4, qn.t1?,ese. early leadsaJ:'e.now,ll:vail"ah~~ ror.treatment of a,host .of,d,ise,ti$es., .."".-;' . . '.' .' . ," """ .

Tur;ning to. the; 'pres:~ntsituation; which .aes, arisen: largely because c)f're.stric:­tiona .. initiated -by .th~:Nationa~;.InsUtutes of' Healtb, .we flnd thatccllaborationbetween~IHgr8cnt~s,a:p,<i, indu~try ..has "substantially. ceased.'. 'Under,.theserestcicttons.an., property, ~ights to a ,chemotherapelltic;, .agent, ,revert ... -to. NUl. 'ifanyNIH.t'.unds,·hQweverj3maH,Jar,e .Involved. :.,:f;,et us .conslder: .e.-eoupte ofexamples of; the, potential .harm,~risi.ngfrolll such restrictions." ,... ..""

For the past few years with N~:II;StlPP9rtI lla:ve,P€fln.int~r,es,t~l1.inconstitll~ts

of certatn.pfants as posalble. therapeutic: agents..!,A1:rJ,Qng .others we. have .found atree ,:bark, which 'contains .e .. substancewhtcb, (through collaboratlonwtth.a-phar­maceutdealflrm prior- to__ 1963, we havefound .exerts. a profound.effect.In .lower­Ing-blood. pressure in .. animals; So:far .we.have not. succeededIn.aeparaung-theactive substance from-the. other, constituents,of the bark Iargely-because we havehad no way of securing the necessary animal tests since 1963. The company-Inquestion, in common with practically all others, doesnou.reej.tuat it .can signtheO'verly,restrictive-NIH -patent. agreements which .ronse.be.esecueea. by. the com­panyprior. to.the collaborative.work.

:A:colfeague of-mine has on his shelf: some ;26 compounds synthesized .wdth NIHsupport .and apecfflcally. 'designed for' treatmenteof -hypertenslon and. 'athero­sclerosis. He is unable to get these screened by any pharmaceutical firm.

'I'he-shoe-also fits "on the" other foot. The".same colleague also has: on . hisshelves ·11 compounds synthesized fer control-of malaria .ta. very 'pressing prob­lem .nowIn. southeast Asia .due to development of' resdstance. to. the commonlyused; drugs) . Support for the :synthesis, or these substances. came 'from, a phar­maceutlcal. firm' which naturally.destree-tovretain.clghts- to them but: which' hasno recnttvrorseceentng tham for antlmalarialuction. Negotiations. with ,NIH,which does have such ractltues.. for doing the: screentng.. revealed that shouldNIH screen them all rights would revert to the Government.

Thus, collaboration' in this: vitally. important 'area has been' effectively .blockedwlthresultant unfortunate effects, to say the least, on the general public-health,welrare.uud.aaretv. ,·'i'" ..' ,,';.' ",

In: the.Iightof the preceding dtscusston.unavr .therefore suggest the followingmodification '.of the"McClellan' bill,' (S. 1809,)-; -whlch otherwise I consider anexcellent bill, 'fOry()our: se~i?Us: consider.~ti?n; in tI;t~'public. interest;

li,{d) ;II\he-J~rn:li"GoJ:1.traGto~';.:IIl.e.a,¥~"allY,person. and. allY p:Q-b~ie or.prtvate cor­por~t,iQn"Pa:r;tner~hip, firm; ,;~J~~Qqifl.t~o,n,>A!lSt.itllti()n, W;,.Qther:,en~~ty; ,Whic,ll; is apartyto the contliact.", ,',c:';;;,:'.',-.,.; >,. ,:';".: ',' ,'.

(e)Th~ term"invention~','mean,s: '~llY; ).,nyention,:discoverY"illuoyatio.ll" or im­provementwhich.appears to "be: reesonebtypetentabte under title 35" UnitedStates.Code. .. ",' ".",'..'.".",-,", .:

(f) The term "disclosure" meana. a:.wrnten -statement sufficientlycolll,pleteas 'to technical detail, ,to",thf3"",emtent: available, to convey to one skilled in the artto :which .the, invention, pertains, a :clear, understanding, of, the' nature" purpose.operation and.estne case may,be, physicalr chemlcal; or electrical characteristicsofthe Inventtonc: ,',', ,: ,:"_i,",,.'·

(g) The- term "medc't.. when' used, In.irelation. to :any .tnventlon, ,.meanstheconception & fifflt:~~ea:(;e~of,sucli,inv-entic;Jllffi t-fte.e6ffi:aeef &under the contract. , :':' ",-':; ;:'.";; ',:',,:-:.,

(h) 'I'heterm "eo bring to the, point-of .practtcal-eppltcatlon't-means to, manu­facture in the case of a compoeitlonor-produot.rto practice.inthe case of a process,or, to' operate in the 'case or a machine or' system andy-In each .cese, under suchconditions as to establish that the inventionis being.worked and that. its benefitsare reasonably accessible to the public.

CONTRACT REQUIREMENTS

SEC. 3. (a) .WheneveranyGover~ment agend~ enters:i~i6'~nyco~t~actv.:here,a principal purpose is the conduct by a person:ofa,s,ignijicantdegree of,experi;.;mentafdevelopment, or. research work. there shall be included- in that. contractprovisions determined.umder 'regulations which shall be promulgated by the; headof:that agency, -to be effective to carny.into effect. the.requirements of .thie Act.

(b) -Each ccutract eutered.Into.by .any .Govemmentvagency shall-contain-pro-visions. effectlve.to-e- ....,' c;'._.,,;,.:_., _"<':" ". ",

(1)· require the prompt ~ftlH'disclosurebythe contractor to that agencyof any.Inventdon madednthe course ofor, under the.contractc' .. ,":

(2) reserve to the United States not-less than an Irrevocable.inonexelusive ,nontransferable. rcyalty-free..Iicense.for. the-practice throughout .the. world,by or on behalf of the: United States or-by a.foreign government 'pursuant to

·'any,:-treaty-:or cthec.ugreernent-wdth-fhe Government "of.tbe-Untted States.in jor:ce;at. the time the,contractis'entei'ed: into, 'ofeach.such Invention ; . .,

',(3),·' reserve' to' the contractor .not. .less .bhanran -Irrevocable•..-nonexclusive,royalty-free license for the practice throughout .the .world. ofceach.rsuchjnvention.~:together with the right ·to.grant.sJ1,blicens68'-of the same scope to theextent, the contractor :' ,was·,legally·;obligated to..do,eoat tne . time .theconsract wasawarded. Such license shall extend to its existing and future associated andaffiliated •companies; if, anyj:' within thec.orporate:.structure·of.:which .the

. contractor is, apart and-shall-be nontransferable, exeeptc.that it shall beassignable to -the successor. of that partof the-contractor's busineseto whichsuch inventdonpertefns; C'", C"": .... . • . c'J

(4) reserve:to the, Untted.Stetes sucb greaterrightsin.each.snch invention,as the head, of th:.tt agency.may determine ~confiirmity_;With-,theprovisio,ns

of this Ack i '-;'.(5) provide. in the .case of the.issuance to any person-other than. the head

-of .that.ugency of the principal- or. exclusive rights in .. any .invention, appro­prlate-meens whereby such agency head thereafter: may require .the. owner. ofthose rightsto grant to other persons licenses for-the practice of-such inven­tion, upon such reasonable terms and conditions subject to review,by the agencyhead at the request.of ef,therparty to the negotiation ftB-the ~:mtty' I31esePiaeupon a determination made by such agency head-.atuer affording .tbe cppcr­tunity of a hearing to bhe.owner ofbhoae rights;.:that,.(a)theawner of thoserights has not within three years after issuance of the patent exerted substantialefforts .to bring the inventionto the point- ofpractdcal.appllcation and (bjbhepublic interest .would. be better served by .requiring. the owner to license one ·or.more 4;fte _eeeeeee ee other persons e-f':lieeftees m,:-theto practice-es thatinvention;" ,>..., '.' ',: -: , -: .

(6) provide, ,in,:theeventtheprincipal,ffi'ffifelul3ive rights in any inventionare acquired. by .the- head of -that agency on. behalf of .theUnlted States, .. and

,__.suoh ageney head.doea not timely elect to secure a-patent in a foreign-country,appropriate meana.whereby-the. contractor. may,tim.ely.:file; and retain. suchgreater foreign rights. subject to the rights reserYed-:tothe;United"Stat.esin,subsection (b) (2) of thissectton; . ,

54-400~65--pt.2----20

690 GOVE'RNMENT'1?ATENTPOLICY

ELE(jTRq~ib'J:~riJJ~~iuE~"Ass()cIATi&N."',' :,' _' .,', --, r ",<c:" . .,,"W'<i*_~:ir:[f~O~, D.y.,.,JUl1!19,/ 96l1;,.H;on.JdHNL;MCCI;E~!fAN•. ' " " ",_.,,' ,'.-,", ", ,.' -:, " -" -_',~Onajr11'/4n, ,SUQ0CYlrlifYl,itte:e, o:n Patent8" .Tradt3m:q,r!ps, Ulna: OOPyril/l!'t8' oi uie ~ert;a{e

JutUoiary 0011trn.itt_~_fJ;U'S'Sen;ate',l¥A~hWJ,lrtiJn"D.O. ": .," :,'; ..':DEARS~NATOR MCO~Lr.;4-N_:, It 'iR the purpose or' this let~er::to,suppleme:utthe

statement transmitted to the Subcommittee on Patents'. Tradem~.lJ;ks"andp,oPY_~rights of the Senate J udlciary Commlttee. in connection: with the recent hearings~l?lft,ting to B. 789;,S" J809,.:S.1899. and S.1Q47.We. hope .that 'it will be. h'elpfulto your'suJ?colllnJjtte~:lf;:we supplement OUt pr€lpared;f,'tat~mE.'illt.and,~dd,emphas~sto' ,m,aHers.. l~~i~e,d, b:v:~,other:witnesses ·~t, th:e,h€l11ring~:of J'~Ile.J ,and2,andJ:UlY)~an(l7.,",:.,,' ",',:",' , ' , ,.', '. " " ", " ":", ,"_,,~ ,We,:alsoh~ve "prepared. a complete' Hne-by-Iine recommendation for the' con­y:,:.w.fe.-n~e:ofy.o1lt .commlttee -and ,staff.,' Sinc;e, the Itne-by-ltne. a:q,aly,s~s of s. ,1809~:;; ,~ll i.Jl<;lllsfve, regardlessof :l"elative [mportance, ,it, is, so far ue,we ar.e concerned,of i1O' consequence that this additional paper become part of the reco~d_,()(t1lehearLqg of the .subeommtttee and itis offered only as a convenience.'jr.r,1l~r'e Is one.area where .wewould especially.Iiketo suggest thoughtful' analysla.

Iatestlmonrgtven on .J'une 1, .we .heard dlscussions. conc~~p.ing th~ divi~iqn, orrightsbetween. the Government" and between the ,col1tr~ctors., .In dlscuselng the~'~ghts,of9:0yernme:nt"areW~ ccneerned with the ,r~ght.thing!,.•.Arewe sometimest9Q,<:lQsei~().;the,!3\lJbjed!: Are the trees obscuring, the foreet.? -: c, ,:

,.Th~.G()v'ernment's:Ileeds, strictly speaking",ha:v;e nothing to.<io ,with who holdstitle, to ,8;,n,illyep.t~on., ,Every .Govel'nment,nee4',~a,ri'be:;takencare of: adequatelywithalice-nse..' ',.":;; ',',';: ""'-" ,,', '.:",,' :,,',The public benefit is the key .constderatton and Itdoes not foll()w IiutP-lllatically,in, .oue opjnlon, that the public is,best served when ti,tle is taken b,Y the GoverJl~

ment-. 'We, suggest. that, economtegrowth ds our primary. goal.. ,New _technology,is very important to the achievement of that goal and manyof us believe that.that.goal"is,re,aelie4, best and fastest by leaving title,. whenever possible.. with'the cOJ1traetor- who is reaponelble for the invention. . "

Thi~, is. sti1~ anatjon where .the .. Goveriunentstepsfn only when non-Govern­me-nt can't or won't operate. The question was asked on the first day, of th~hearings" .."Why,.dge~the.contvactor :want.:.title!~' As a. matter, of ,la,v~: titl6ivests in an inventor or his as:signee,cCincur~entlywith the making of the-m­ventton. ..Hence' the contractor -' owns the invention upon its conception.... Whydoes 'the 'Government want to deprive. him ,9f,t~e .. invention! The, Governmentdoes net. take away the contractor'sspec~ally,trai;nedscientists. The contractorshould retain title, under the.prin,ciplestated ab9:ve,uriless' there isa clear publicinterest superior: to the contractor." Title j~thecolltl'~ctor.~houldtherefor be4istul'bed .as 'l'R:rely. as it is.·possibl,::. to do 'SO'.::! ' It, can be argued .that the publicInterest requires, the t lll9¥g;:Of,,t~~~~ ,(}Il1YW;lL~n:~e: ~ntraptor won't or, can't; ad­vance'thetechnology.:;, ,:'.'<:: .' :',,'::,"'.-.,. ,.', ;,'

A. lot. was said at the recent hea#ngs,a,pput conimsrctejtsatton .of Inve~9on,~.W~ are ... sorry that, so" little. was said..of,;~b,~" Importance of. disclosure and ,y~tdisclosure is the primarypurpose."of the ;patent grant; Le., the exchange ,oflimited exclllsivi,tyfordi'sclosure~notcommerctallzatton- but disclosure.. Somevery valuQ.'ble;inV;entions maybe.commerclally Impraettcable but-they trigger offothers which make commerctattsation feasible... . .. ", We,::wisll.to .endorse the position taken a-t,t;he hearings concerning the definl­

tiori. ();f, ,'.~mllde:i'. with :respect, to, .. the. ma~ing,of .. an Invention. The .l;lispositionof title to inventions should be based upon uconceptions"and",shollJd,;l1ot,sweep'in .reductlons to. ,practi~~.>IJl,dU'stl'-Y .was uIlhappywheu',tp:e"Depa-rtmellt ofDefense, adopted' thislan-guageyears ago at,ft ,time:Wl1en~,the,Gpvernment~~ceivedOnlya jtcense and' even.men excluded the,taking;.:.ot ,such licenseswhen .certatn conditions, were,. IU"existence.For"ex,ample" Sll])po,se that. modi­fieation Isfnvented ineleotronic equipment. "Its 'l1tilitY,seelUs so obvious thatthecompanv inYQlve4 ,dQeEl. n,ot }·U'Sh.' tq red:uc~, i,t to. praeti.~.e.O'r, perh~ps, theiilventor has: tested the idea to his own shtisfaction'Put, pas: not y~t{lemonstratedit, .. llnd .. therefo~e ... has .. llo, :,corr,ofJoration._ .. NO\"f,. :;;llppose. that a ,Gp-vernmentagency wishes to develop some' apparatus and the inveIlti,oll .preTiouslycon~,

ceived appears to be quite useful in fulfilling the work to be performed underthe-contract. Under section 4(a) (1), the contractor would lose title and yetthe contractor has accomplished, at his own expense, everything except the finalformal step. We do not believe that it is fair for the Go'vernment to deprive

In'ex~eptioh3J:cir~"[[lnsta,ncesthe",dfbtfbt,irli~lation '()~':'~u'ch ·,~igh~s'.mliY ;tJe~ madea'~ :tp,e:'thlle ,of" CO~bicting;~f, the ag~ll~r 'head cei'tifi~~~,',tJ:1~:Vs1J.ch'!ic:tion''Yill 'best$~r,'ve t~e' ~ub~ic inter,est: . ' 'J -, '! 1 "! ,'" ',. .'

ADMINIS'TRATtVE: PROCEDUREs:'FOR"" DEl'ERMIN'A'l'IONS',,, ' , ", f;" ,'",: .' : , ,'" , --:' " , , ' ,', '"

:SEO.5;",( a, ),-,'Whene,vei':a-, contract .provldesctaevagency head 'wtth "the .rtghbrtoacqutres-after-the invention 'has beenidentified;'greater:dghts: than the nonex­clustve.Iieenseepectfled dn 'section 3 (b)(2)" and 'and-he 'decides -to exercise' suchrfghts.: he.ehallowithtn: :sixty, .daya .atter "receipt-of-nhe idtsclosure-. required bysection 3(b) (1) :

, (1) -make ,R': determination .supported Jryflndings of-factdthau: he, shallacquire on behalf of the United States greater rights than the nonexclusive

"C', : license' speclfledeinnsection ''3{b)'(2),:, 'pursuant tb'theprovisions of"section'"\",:4(b)::or-:section 4(c) ;,': ":'--', ,,:.,::: "",:" ;

(2)' "if 'the agency: 'neao.oetenames. that, he shall acquire, on.behalfof theUnited States greater rights than the ,nonexclusive:-licelisespeci.;fied'in, sec­tion' 3(b) (2):;.he. shall ,within: sixty" days: after -maklng. such.tdeterminationtransmit. to : tjrevcontractor 'wrdtten; notice. .cf. his-dntentdon 'which" notice

"'/, shall;,.:.;..." ' 'w;: (Ar specify, the: nature of the .property right in tnat.tnvenrton wntcb

the' agency' head claims :on behalf, of theUntted-Statesj. . .(B) state with par-tlculardby.: the "basis for • bener-mat.: the :United

Btntes.Is' entitled under: tuts 'Act, to':acquire',slich:propertYright in that- .fuventton raud ','jU':"

(0) accord to the contractor, or: his: dUlyea,uthoDized crepresentalive,

an-opportunity for' a lieartng; 'conducted, in, 'dorripltance with the' provi­sions 'ofi,the: Administrative__ ProcedureActp.upon.ithe' 'question Whetherthe Untted-Statesrds 'entitled, .under.Jthts ,Act .to 'acquire .auch 'propertyrights in that invention.

(b) If no applfcatton-fora hearing under',section,5(a:}{2HC) is made by thecontrllct()r,. or,.hi~ duly .authorized representative, ,within thirtY.,days after. re­ceipt, of :n()tice .by ,the .contractor, .or if. the 'agencythead .determines upon therecord of any such hearing that. fhe-United States .'is:entitl~d under this Actto acquire gl'eat~r rights than ,the nonex9lusiye"licens.e specified, in section 3(b) (2), the agency headshaHi-ssue witli're'silect to-that Inventton ,a writtendeclaratio.n o,f acquiring on behalf ofthe:Unitf?d States,:which'~lllll1- .,'

(1L identify ;withPa:rticularity the)nve,ntion to'wpich' it'relates; and,(2) "specify the nature of the property right ,th€l;ein _~o' acquired on behalf

of the"UnltedBtates.. Such declarationshall be:serv~duponthecontractororO'lponhisduly authorized repre~entative; and a cOP'y"thereof shall tktransmitted tp}~e Commissioner of Patents." T.he ageIlc~~,headshalladvise,

"'the, ,CqmI;ritss~on~r,of... Patents promptly" con~erni~g, the.venCfeIlcy.., andresult.of'anyju!iiciarreviewo-f such dectacatlon;' '.' '

'. __ , '" "",;! ',,,,d,'--,, __'''',,, ",,",' "",,"" ",,' ",,-,

JUDiGIXr.:':REv'iEW~·OF.DEt#~},r!NA'rIgNS::"" 'SEo.6. (a) Whenever- .an::' :'agency head ~,' acquires the :prinCipal 1'igMs under

seotion 4 (a), or any such declaration of acqulrlng .Is. tssued.by an'agencyheadafter hearing, 01' any final determination is made under section 3(b) (5) or sec­tion 3(b) (8), any party'aggrieved"therebyshall'be,entitled to a judicial reviewof .the basis for such, declaration or,fin,al,d.eterminati()n by ,fiHllga written peti­tion for an. order, aettlng ustde thatclec1~ration.or. d,eterminati()~ in the Unit~dStateaCour-tof Appeals for,theDi,striCt ofCol.U~bia ,or:in the court of .appealsOf, the United States for .the judicial .circult in which .such ,party, resides alldserving a .true· copy of the .petitio:rl,upon'the agency head, within sixty daysafter notice or such declarationor deterIllination.The agency.head thereuponshaUcertify and file .in fhe court a true.and correct, transcript of the entirerecord ;~f the proceedlnga upon which the:aoquisition, declal':l~j,onO-:~'determina~

t~()n:w:l~ based, including, an evtdence taken and the )indiIlgs,:.and .cciicjusfonsmade by the agency head thereon,". ..... ",'.' ... ' ". ... , ",

(h) The court shall have jurisdiction tobear all.cI.;d~~~rin111~any such petitioil;and shan have power to affirm, modify, or set aside the acquisition, declaration 'ordetermination. In.any such review, the findings of fact made by the agency head,if supported by substantial evidence, shall be conclusive. If either party shall

692", '\'

GOVERNM;ENT PATENT POLICY

'''Ti'L::~oWE'S,

Ohaw~a;n,EIA:p'at~'n,t8.~n.d'PrO'pri'etitry,Informu,t:ion- Committee;, , .... ' ,,_ ,'- " ... ' ','G:RA.~AM_W;'-McGOWAN,

Gen.eral Gouns.el; :FJlectr'orllic1 ndu8trie8'A880ciation.

these' 'criteria" -mighti. bec1vestricteo.;.to:: Improvementsicr -tnvenuone or., cr,itic~lslgtitflcancedn connection with the: end. objective; These problems-are paa'tdcu­lady serious for would-be contractors"indrug.andsaretyflelds.

In section4( a) (3); .theGovernmentmay. 'R?quire: greater, rights, whenever theinvention "might" comer. on.che contractor. a;~llreferred':ordominant .posttdon."Itcan-be argued and. has-been argued'uhde~~thepresentDOD regulatlouataatever~Yllat~ntoonfers.aprefemed.posftton. Indeed; this is thepurpose of the grantOf':'fi' patent. Iti,is not this Isort: of preferred: position Which you nave.tn.mtnd.we'aresUre"and,'similarly;'otherswho'have proposed this type of Ianguagehavenot had this kind of dominance In.rnind. 'I'hereforectt dsbelfeved thatIt 'wouldbe helpful to ,reword this criterion es rouowa: ~'rights at the time of contractingis Ifkely to confer.onthe contractor a dominantposition;". ' ' '..

:W:itllrespect to -sectlon-S'(b) , we' would urge .that a careful ",study -ne.maeebecause, .at nrst thought;, It appears' to be repugnant to. argue that the-public.benertc reqetres the taking of-exclusive rights from the conteactor onlvto; inturn, pees-on thoseexclusiv~rights to another cttdzen or U;S.-based. ,firm. Itisfor, this reason that manybelteve that-any citizen. who wishes to .use aOovem­m~nt-heId'patentshouldbe:entitled:to:afre:ei'noIiexclus~velicense. Both Salton­stall, and1:J0llg, propose de;dication.',-, ,We believe this, approach is sound in mostc~~es. ,'In those case~ where exclusiVity Is-necessary ;f?rdevelopment" we believeexclusivity 'sliould,remlliIi with';the"contractor.'The'public interest can' amplyb.esatisfiedby compulsory licensin;.,

'Referring to ltnes ,10 .andli. on- page 15;' theHcense .provtded therein may', begranted with or without-thepayment of royalty to the United States. This typeof language can lead to governmental regulation of industry :by determining. whocan have a license and ho"rmllch he'tmay have to:·pay.It: has been advocated,ror example; that the Governmenrgr~texclusive licenses to-a small companyto help." It-grow larger and then-when it ts-Iarge-enough to stand on its Own feet,the license: should- be takenaway and given to someone else or the royalty.irateshould be inCl,'e:as~ or'some·.other step taken' to 'remove any advantage it 'mighthave.. :..MallY: fear this type of .Gcvernment entry into the control of the businessof .the Nation; ,

Vety'trUIy'yonrs;-'

,SU:OGESTED. '.AMENDMENTS /roiS:·· '18'09:

[Omit the part,struck .through-and Insert the partprinted in italic]A ,BILLi-Q ~~tabli'Sh',a uniform u:ationai. policy, c~nc~riiing property _rights iIijnventions'

',m.a:de, ,throught~e' expenditure OfPllblic funds; and for other' purposes

"Be it:enavterJby,the .senate uoa HOu8e.O/iRepre8entative8 ot tne. UnriteaSta(e8ot America.tn'Oongre88 aS8embled,That this AcLmay be cltedus. the ~'F:ederalInventions .ACt". .

DEFINITIONSSEC. 2. As used. in thisAct-,:":~,,.(a) .The term "Government agency" includes .any .exccuctve or .mllitary depart­

ment' of the-United. States; any other:agency;;independent commtssion, board,omce.. administration; .orauthority .or.tne Government,. and any· .wholly ownedGovernment corporation.

(b )"'Theterm" "agency .head" .' means' the 'head of. .any -. Government agency,except that (1) the Secretary of Defense. shall be the agency head of the Depart­mentof Defense and of eachmilitary:de.Ilartmentthereof, and (2) in the ease ofany' authority, commdsslou; or other-agency.rcontrol over which is .exercised bymore' than one Jndivfdual, 'such term, means .the body exercising .such control,

(c) "The .temi.t'contractvmeans-any ·written: contract" 'grant, .agreement.i.com­mitment.-understandlng; or other.written, arrangement entered, into between anyGovernment agency and-any.ether person where a pi'iJncipal purpose of the, con­tract is the conduct or. experimental, 'development, or research.work.. Such termincludes any.-assig;nment,',sub-stitutionof parttes.. or subcontract of any; tierentered' info or ' executed .ror .or.in »connection.: with, .the •performance. or.. thatcontract.

'(o)i'Each agency' head'" may'grant: an 'djijrMpriate' ,e'1fell:1siye:6i"fieE:' ffifelllSi •elicense for }he,practice()f any invel1tion, for which he-holds ,a, patent', ~cquiredunder-this-Act-on behalf 'of the United' States. ,Any'such license shall be grantedunder such terms and conditions as the agency head shall determine to be in-thepublic interest. Any such license may be granted for the effective period of thepatent or for a more limited period/of tirile;'and may be granted with or withoutthe R~.y;w~n~::ef,rpy¥ty,to"tb,epnited ,States,~

REPORTS TO THE CONGRESS'

SEVERABILITY, CL.AUS;Iil

S~. lQ., If ~y provisi~n,',of,this 'Act:. or,; the a:(iplicatioh,~fSUch:pt~N~io~toany. person .oncfrcumstance, is held,:i:~walid;: .,the,r~:Qlaip.(ier: ?~ ~i8 'Apt or .'!:heapplication of~uch;,pJ;'oyisf911S; to perso'ns:~: ·or,Cir,Guw-st~n~es :?th~r,tn,an 'tp.~s,e ,as ~oW~i~!J.ip~L~e~~~qIlvalidi,~;¥gA-()t;~ a,ff~'ct~q.;t)l~p~\ '.' . , '-. ' i, . '"

:';~O;~~ICAi"4:M:~~¥~N¥~SEC. ,ll., (a). .Se'c-ti6#'lO(a/ of "We'Act',of, J tirie:i?9~ ,1935,asadded'hy'section

l019~theActof Augri,st 14,1946 (80,St,at,~08,5, as 'amended: ?'{JJ3.9. 427i(a) isamended ,bystriking out the following language :', HAnYCon~racts made Pllrsuanttothis authority sh3,11 c{)nt,~iIl requirements making 'the' results 'of research-andinvestiglltions available to ,the public through dedication, assignment to' theGover~ment,orf311~4 oth,e.r:Qleans,as the, ~€lcr~t:lryshal1 determine;" '. ,.'

(bi ~he N:atiOI!~J.Sc;iellce::FoundationA.,ct''(}f}9~O ,i,s amend,~dl)Y, strikJIlg outsection 12 thereof (42U.S.C:l871). " " "

(c) ..T~e At9mie .Enewr, A.~ of ~954 i~" a~ended,'~y striking out ,~cti()n:'l52th~reQf (42 U,.S.C.21S2); , , ', , "'." " "

(drT,h~l'{,atioIla(,Aeronautic8 and 'Space Act of 1958 i8:am~nded' by~:(1) striking out section 305 thereof (42 U;8:0. 2457) ; and .' ,(~) t>Y,strildng out in section 306 "the Inventions andCon'tributions

Board, established under section 305 of this Act," and insertlng In lieu there­of "an I l1velltiolls and Contrfbutlons. Board whlch shall be established bythe Administrator within the Administration." -

(e)' 'T,hy':Coaj)~esea;t'ch::aIldDe,yelopmellt a9t'pfJ~~(74 StD+,~36),is amendedby striking.out'.sec,ti?n6.. ,.... " .. ,' - .

(f) The Helium Act ArrlEmdments of 1960 (74,Stat.',918). is amended 'bystrikingout the following. language In. section ,,4: llProvided,. ho'Werer,That all, researchcontracted rorvaponsored, cosponsored,' or' authorized under" authority 'of 'thisAct shall be provided for in such a manuel' that all Information, uses, products',processes, .patents, and other' developments resulting from such .researcfi'rde­veloped by Government expenditure will .(with such exceptions and Jilllitation,if any,as the Secretary :gJ-ay. find to be necessarv. in the interest of nationaldefense) be avaflable to the.general public ,:And provided further, 'Thatnothingcontained herein shall 'be construed as to ,deprive the oWIler o~ ,any 'backgroundpatent relating thereto to such rightsashe:,lllay have tlie;rellnqer." ." .-", .. ,'

(g) Th.e Sali~e Water. Co:~wer~i,on ,Ac,t9f, 19~,1 C75,:3tat.'628)" is amendedbystrikingolltse~tion,4('b),. " .. ",' .,,'., >'. .' '.' ,', ,

(h), The Arms Control and Disarmament Act ofl~61'(7~ Stat63;l»)s:'l'n/eri;~'e,dby strildng out section 32. " "

SEC. g~,rJ;'hehel;Lq of each agency which awards anyeontracts of the classdescribed in sectioll",,3(a),shall submit semiannual reports to the Congresscontatnlng-c- .

(a) the number of: contracts executed-for each of' the_,su'bseeti6n's:,'(a);:(h);and (c) of section 4, and the number of inventions disclosed pursuant-to-suchcontracts;

(b)' the, number and:general'na'ture:of,such'inventions witll respect towhlch theagency acquired no greater .rights, than a, royalty-free .Ilcense in accordance rwlchsection 4, and a summary of the findings of fact upon.which.suchdeterminationswere 'made; and-, , r :' ,:j"'':_';,_ ~:I>': "",;,

(c) the number and general nature, of such inventions with respect to whichthe, agencjohas acquired-greatera-lghts -than a, royalty-free Jtcense In.uccordancewith sectjond and a 8u/mmwry ot-Jtne,findings, of fact uponu;hich·fl,(J,eterynina.ti01~

of the applicability otsection 4: wa,8"ba.8fJcL.

(7f"·provide, ,in ~hE{ event a patent.· 'a'Pp"li~ati?n:is,file~''()]Fan'y'mventi0J:imade, by. ·the'contractor,' appropriate' means 'whereby the tappliearrt. shall, be:required to include within the first para,graph of the ,specificati?n of such, a~plication and -any patent Issuingithereon,« a 'statement specifying that' theinvention described therein shall. be-subject to-the provisions 'of this Act;

(8) provide, in the event the contractor does .not make a prompt eeek ffiH:d~scloslIre to the extent reasonably possible·,to thatnagency ofauy inventionmade ffi4;he eetli'Be. ee ee under-the contract; appropriate means whereby'any rights of the 'contractor -iu.such-invention shall,' be "void and such.rlghtsshall become the exclusive property of the head-of that agency, .on behalf ofthe United States, upon a determination made by-such agency head; afteraffording the opportunity of .a hearing to thecontractor; that the contractorknowingly and ,in 'bad faith' withheld, rendering. apromptand.tulldiselosureto that agency of such Invention; and , , "" ,',' ,

(9) provide .thatvnothing.cconbaineddn this .Act shall-be 'construed' as 're­quiringthe granting to the United,' States'of any right or .interest duly acquiredin, or-with respect to any patent issued for any "invention not made' ffi-t-he

, eetli'Be ef ,eP, under- the contract, '

PROPERTY RIGHTS OF THE OONTRAOTOR AND THE UNITED STATES

SEC. 4. (a) The agency head ~'ft~i may acq~ire,at the time ofentering into thecontract, on 'behalf ofrbheUnited States; the principal & B*effisi¥e rights in anyinventionmade>'b:rthe;:contractor if: ,,' .: '". - ,:;: "

(1) the purpose of the contract is -to'createjordevelop,ei'.-'il'f113p8.,einewproducts, 'processes; "or methods which' are intended: -for -commercial use-bythe general publicj.orvwhich will be required .foreueh .use by. governmental;regulations, provide'd' that' such -producte, . processes, or. methods' are of 'criticalsignificance and that no reasonably compe,titiveitem is readily available;.or '

(2); the-purpose- of the' contract-Is for-exploration Into fields which directlyconcern and are of'critical' significance. in: connection 'with .the public.·:fteaJ:t-:h:;health'welffire; ·welfareor-safety; or ,. . '

(3) the contract is inca field of science.'or 'technology in which there hasbeen littl~ 'significant experience outside of work funded by.the Government,or where. the Government .hae been' subst,antiallYf,thesole sele;' 13Fffiei13sl, ee

. J*'ime·developer· of -the-field, 'and -the acquisition' .cr exclusive :rights: at the__time ofcontraeting ..might. is likely, zo confer -on- the contractor 13PefeFFed ee

dominant position;' or . -,. .'(4) 'the .servicesof the contractor-are for- the operatton ota government­

owned research or production facility; 'or for coordinating and directing the;work of others. '

In excepttonel. circumstances the contractor .may retain Q-e~e at the: time ofcontracting or upon disclosure of the invention,notwithstanding the existence ofany of the conditions specified'in section 4-(a) (1) to ',(4-) jinclusive, greater rightsthan the nonexclusive license specified in section 3(b) (3) .it. the agency headdetermines eertifie5that such 'action .will.best .aerve the public interest;

(b) Where· Notivithstandingthe provisions ,o!section, (4)(a)-,:where the purpose ofthe contract Is to build upon existing knowledge ()r technology to develop informa­tion; products, processes; or methods for,use:bY,theGovernment,,'and the workcaned for. byrthe contract is' in afield of science .' or-technologyIn which -thecon­tractorhas acquired technical compenbence directly related to an area in which hehas an established nongovernmental commercialposition, the 'agency' head shallacquire nogreater rights than the nonexclusive license specified in section3(b) (2)unless he' determines, after, the .dnventdon has : been identified, -that there areexceptional ~.~ circumstances which indicate that, the public interest wouldSUffer as a result-of the, contractor retaining the principal. or exclusive .rlghte insuch 'invention;' " " ' ..' ' ,

(c) As -to .any other contract. executed under this Act that is not, within the pur­view of subsections (a). and (b), tet.of· this section, the determinationof.rights inany .inventdon made by the, contractor: shall' be made' by the.agency: head after thedisclosure required by, section 3(b) (1) has been ,received. .Upon receipt thereof,the agency head shallacquire no greater rights than the nonexclusive license specl­fled in section 3(b)(2) unless he determines; after examination of the facts, 'of thepartii:nI1,ar;ica~e" thai "there areeeeete; exceptional circllmstances:'~hich .indjcatethat' the .·public:interes.t-wo~.l~,sUffe~.·.as a:result of.the\~~ntl'act?~,'acquir~n$'theprlncfpal.or exclusive rights. '/" ...< :,,,,: ':', "";:',.,.''',''\',''" .. ',' ... "

During the,pos.t~WorldWar::II1Je:rio(l, w~':were the" first, to develop ,v~ry. hdghaltitude parachutes for meteorologieal-gcckets, and, proved their .feasibili ty.:, "Wehave had extensive experience In.designing.crttical helmets fOl~ mtlltary aviators,as.well as shrapnel-resustanr helmets as used by tank crewmen. Our work-In­eludes the sturdy cross-slot webbing now used for cargo nets, safetyequipmentsuch. as a carrier ror live detonators, advanced heat-reflective clothlngmatertal,and other survival equipment. , ' , """ '

It is, discouraging to have created and developed Intellectual pJ:"0perty and, tothen have it appropriated. .:::,('

We have presented our cases to administrative authorities. It is very unfor­.tunate that the rationale of juatiflcation.Is more'important.than the determtnatdonof right. "

We were encouraged, for example, on a crash basis, to develop a survival kit.contatner ~O'r the Department.of' the Navy." , , ' '

i Thi;:; item fitted into tb,~'frameworkofcompany policy in that it, was for mili­.tary.usage. It.was in an. area: orourjecuntcal.comnetence and expertence.candwe could reasonably hope toproduce. 'fil~; Item .on our presentfa,ci1i~if.s., 'I'he De-

.partment of Defense was apparently tope tne ~olesi.ist.omer;' :"" :The,requirement, wasurgent and deliveries ,we!e',~tated tobe needed.wtthtn 45days after theaward or,n contract.. "Itwas agreed that Gentexwould a<;tollly as

.a subcontractor.. and.would not spbJ:!lit, ,a dire~t,pr:<:l.po-s~l..,f1:s .a,.pr,im~.;,coll,tr:a:ct9r.Th~ Gentex part number or equal was in the specification submitted with t~ej:q.yi-

,tat1911·' ~>< ..:\ ':", ","'; :.,: :-:,,\"'~',: <J", ':r,":. ,The prime contractor proceeded to, rev.erse,engin¢er.tb,e ite;m a,fter the award of

the ~onl<ract.:,TheNavy tllen di.«(tllreetliings,:. ....', " "/ . '::1. ,1'he' prtme c9no/actof:'w~~per:m;itted, to. submit; ,several r>rot?types"ea,ch,:,Of

which reverse engineered our design. 'I'hls waa.In violatlon ,o~thel:ArmedServ­ices, Procpre:ment:Re.gulations;coyering articles orbrand. nama.or equal. ,Thematenlal .used was,approx{mately\ one-fourth. as :costly,.as that, which .we foundlle:cess~ll,'y,to, use.to ,aqhi,eve proper·fufidjoni .',I.'he,~avy~s own.enectncataon drawn

,a,t:a 'la.te]~ datecQn:firlllci:1.-:(}u~·,def~r-rtiill,ati<)Jl,,~or:the. use, Of., the salp,e ex~nMv~,nlate:fi.~~" ...' .-"",;, ,-,::' :;:,>j:,:,>',:,;: ..' '; ," .':.- ~-:'" :.-,,',." '..:",,':', ,:,' - ':,-

2. T~,e. 4:5~day ,deliv,er~", req·).lire-.ment .was extended more" than s.montne to, ac­commodate th,e prlirle"cqrit:r;af.:to,r's, desir'e.to,attexpp,t to reverse.engineer." .. ,-3.' Tl:u~ -con,t;ract wasamend,ed approximately B months afte~Jts"award,.with­.out a' reduction, in pryce,' tomcludea I»it~nt,jlldemnityc1ausewhich. would .pro­.;t~ct:the:.:Na;vy,:again,st.a .Gentex patent,;:s;tl.OJl~.d one, thereafter be ;is8ued. .(Theclause empl1yed was...unuaual.dn ,~hat i-tpea,lt.uot With patent, indemnity genera,lly"butsingled out the GentexCorp:spec#ic!:iUY:,).' ,"--:: .-,;-i:,: !: '__ ,i~: " . . . "

The ratfonalizatlon by, admlntstrattve authortttea.rorthla action was that:(1}There was then no valid,issuedpatent.,', . ..'(2) Gentex had sold a single container .to the Department of Defense, which

was not: in fact so; that the Department. therefore had.the right to .reverse.engf-neer or to.permtt it to be reverae engmeered. >,',,'::..' ,

(3) The prime contractor believed that he could make.the artfcle at less costthan .we had quoted, and he 'was therefore entitled to reverse, engineer it, .even,tb,ougllperformance under the contract was greatly delayed.

(4) Absence of consideration to the Government, despite the extended deliveryand the known substitution of inexpensive material, was.net considered relevant.

(5) Both the Navy and Gentex had been tooinformaUn detailing of rights tointellectual property, which. might arise, and without any .apparent regard.to theextreme urgency and short term for performance of the program.

The-correspondence is voluminous. . (See exhlblt 1.)1Gentex developed an improved sound attenuating earcup for helmeta whteh

would permit the earcup to be oriented to the axis of the ear of the wearer.'Dhe article was first submitted in small experirnental quanttties as a proprie­

tary 'item to 'the Radio Oorp. of Amertca.: The Radio, Corp. of America Isubmitteda drawing to the Air Forceciearly markedthat:it",W'as,propietary,to GentexOorp. (General Textile Mills, .Inc.) .

'I'he Department of .the Air Force appropriated the design; transferred ,it: totheir own -drawlngs.cand asserted that they: had a right to it in view.of a contractthey had with-Radio Oorp.: of America, We protested.this action several timesverbally at a high ndmtntetrattve le-yel.

1 Contained in committee ntes.

y,v.~ ..,. "".'.! "",,,"'":;~"'.'''''~.'';'.:': ,;.....;.~~'t";'...,•. -z: ,~:·"':',""~Yj·t)

apply to.thecourtfor leave-to ~dd~<;e;;~(i4-i.~~0p,.,al evidence, and.shallshow tothesettaracuon .or the.court th~t)~uGhadditionalevidence, is.}naterf,al, the ,~purt, .mayorder 'such additional evidence' to be' taken by' the agency,Jie~d: a:n.d~o."be,coll::sidered in such manner and upon such terms and conditions as the court -maydeem proper. The, agency h.~adm:lY"m(),dify lli~Jindingsas;;to thsraota by reasonof the additional evidence so taken, and he shall file such modified or new findings,and-reeommendatlons.. if,'any, which';.if: supported ·by:, substantial-evidence,' shallbe 'conclusive with. respect 'to :action: in the .matter .undee-coneteeeauon. ... Thejudgmentand decree or. the' courtshallbe.flnal, .except that it .shajl be .subfect.torevtew.by the 'Supreme Court upon certiorari, as provided.In section 1254 of title28, United States Code. ~ . '."

(c ) Any .declaration of acquiring or determination issued: under this Act shallbecome' final---

(Ie) upon the expiration of the time allowedfor.the.maklng of applicationfor an administrative hearing under this Act, if no such appltcatlon-Is: madeWithin'thattimeby the .reclpient- of.noticegiven:;under;section,5(a) or byhis duly. authorized representatlve ; or

(·2J"uponthe expiration ofthe time allowed for filing a.petrtton.ror judtctalreview, if no such petition has been .duly filed within such ttmec or

(3) upon the expiration of the time allowed for filing a petttton.duc.cer­tiorarl-Ifthe.ordec ofthe agency head has- beenamrmedor.tnepetttton forjudicial review.has 'been disIiiissedby a United States court of appeals, andno pe-tition .for certlorard has been-dulyflled-; or

.: (4»:ti:pon the-denial. of apetltion-for certiorari, if the 'order-of. the agencyhead has been affirmed or the petition for review haa.been "dismissed by amnttee-states court of.appeals j.or

(5)-, upon the expirationof ten days from the date orIseuanee or the man­date of the Supreme Court;.if such Oourt-dtrectathat.the.order of the agencyhead be,afflrnred or that-the:petition for review be:dismissed. '

INTERIM. EXAMINATION .·OFPATENT APPLICATION

SEC: 7. Whenever the agency head makes. a declaration of .acqulring .In acco~d~;anee with the prcvtstous of;this Act, .If he concludes that such Invention may eon­taln..patentable..subject matter, .. he..m;}y file with. the Commissioner of PatentsRpatentappJ4cation cov,eringslii9,invention,.'unless one haa.been filed by 'thecontractor, eY~n.th0ugh;.. such declaration of acquiring has notbecome final, asprovided In sectlon 6.o~ this Act. !J;'he Commissioner of.Patenta.shall examinesuch application, .but shall. not fssue anypatent thereon until he has .been-notlfledby the ;agency head that such 4e,c~;1ration.has become final,in~ ,whiohca8e thepat6,1'!-'t ,8halli881i.e to the. Governnterltt, a8 assignee, or. that a flnal-determinatdonhas peen made .that the United 'States .Is not entitled to ·any rights greater, thanthe nonexcluslveHcense specified, in section 3 (b) .(2J :in whiq!t·,.ca8e.: thpp,atent8hall i881W to the inventor or hi8a88ignee. The.,Commissioner;,()f:.l'aten,ts,cShallproceed as provided in title 35, United States Code, except that 'nothing containedtherein shall preclude a party who has .successfully.contested a declaration ofacquiring from exercising all rights with respect' to the securing of a patent onsuch invention "that said parby.would-have enjoyed if-there had' been no deelara-tlon.of aequlrlng by the agency-head. .

PATENTS' OF: TB;E ,. UNITED', STA,TES,.,.." --.'. .,

SEd. 8. (a) Whenever an agencyh€:~d:has.takentitle to,any invel1tionbydeclaration of acquiring .which .has become final or by authority _of.any otherprovision of this Act, and he has reason to believe that such invention is patent­able, he may make application to the Commissioner of Patents for the.Issuanceofa patent therefor to such agency head on behalf of the United States. If theCommissioner determines that such Inventdon is patentable, he shall Issue to suchagency. headon behalf of the United, States a patent therefor.. Efteh~ ..ftett€lefta,R.-tB.ke.~~ -B;B ffiflTy he feEfl:iife8: te preteet.ftiid ·J3feSel i e. -the fH'e~figMs ef the·~ _ ift ""'"~ ee iee<>e4 .... Iffi<>,•.•. llt>- ~.ffil>€!e!>r. ""'" ~ftet><I, the'~\B.HB' ~ sMll se~- ""'""" ... he _8::ete~frJ;ine t:e befeflRiJ::e8:,,~ ~J3Uf:l3a8e ..

LEONARD ·P. FRIEDER, President.

The letters also .dlacuss suggested proeedural and policy changes.The .National .Securtty 'Industrfal Assoctation recently.held, a sertes. of, nation­

wide" brleflng conferences.j.one of, which was in New York.on Marcll,:ll3an(!:17,1965. "Every speaaerrortne Department of Defense.stressed.Interest in receivingsuggestions for development programs" with the: concurrent statelllellt.'that if· thesubmitted program was of interest; it would-be funded by the Government. .NoInterestwas.expressed.for the submission of privately funded.developments. .

It' appears .self-evtdent that ideas which,were .only in the embryonic form wouldbe submitted to the Department. Ideas would not be submitted for Governmentfunding which had already beenredu~edtopractice,at,the.expe.nseof the devel­opel', and where the rights to,relatedintell~tualpropertywouldbe entangled." ,

Economy in development work is obtained by many'i.nventors,ea'cll working'in ;his own field;' .creating .progress .ina ,sound, effective, ',' economrcat; and, demo­cratic way. The inventors should be encouraged to .present. their Ideas .andproducts to' any cr.many.Jnterested-groups 'with, confidence, fhat their right totheir Intellectual.property would-be-respected. ;, "> '- ,

There is no present court or parajudicial .court to review disputes arising outorviolation of rights ;to, Intellectual.rproperty.. ,!An ,adm~nistrative:sett~eDle-ilt,js

slow and largely ineffective. Our: own, experiences have, beeujioor ,and"loJ;lgdelayed. The -Offlce of the Comptroller General haa Hctle-authorttv .If any.The Armed: Services Board of Contract.Appeals' has no authority, for invariab;lythere is' no c,ontract existing, covering' the. matter, in .queatlon.: A,$uit in ;theCourt of Claims IsIong.iInvolved.vexpenstve, .dtsconeerttngv and ;f~W,ca:n,l;l,fforcl

the time, the dislocation of'their normal, effort; •and, the-expense, cQW~~dering,therlsk.whlch Is Jnvolvedvi. <".'.:.:.;' ,";-::-::' I. did suggest, to Congressman: :EmanueLCe~ler:thecreationof.niparajudiclal

board, patterned' erterme-Armed. Services Board of' .Oontract-Appeals,.:to, hearmatters! Jnvolvlngtthe ,', violation' of" intellectual property, andother-.mattera "" withthe Department of Defense; , _ '" , ..

'Dhe.practlee of appropriation.denies much-of the.fruits of further independentresearch and product improvement: to) -nier Government; . The •.·independent .In-.ventor; having once 'had. hlsproperty-appropriated.rls reluctant to make rurthersubmtsslons.. -, Improvement~to the basic dnventlon by.the inventor'who, 'by basdcexperience in the. rprojectis best qualified 'to 'make Improvements.care thereforedenied the Government. ".,,:. ;',":' '.;';

The 'reduction' of a "device .cr-Imprcvemenu-tc practice invariably;i suggestsImprovements to' 'the inventor. Grounded as.' he, Is In-the basic- •. elements..-of-thedeaign.t.these dmprovements are-Llkelyv to be. much .mone significant than.carethose which suggest. 'themselves 'to-one 'merely; Interested-In-appropriatlng :byreverse engineering.

Gentex has continued tomake'submissioris of inventions' and product improve­ments only .ori a very .selective .basis. These submisstona-are ..-made .onlv-toagencies where there. is an expectattorrthatnur. rlghteto.the.devlce.or improve­ment will.be protected; This is' the Gentex;experience-andpractice~Nltthere-areundoubtedly many other companies who, faced with the same problem, have edtherhandled it as we have or have followed the policy. of complete, withholding .orinformation.

Drying up the sources .of progress: is not, the way this country's interests-arebest served. The country has grown strong by encouraglngvand: rewardingproductive effort. The denial of, encourgement and reward, can-only. destroythe 'historic basis of this country's progress. This we believe should-be a matterof great concern to responsible legislative 'and administrative authorftles.:

Very respectfully submitted.

GENERAL lDLECTRIC, Co.,New York,.N.Y.,June 18,1965.

Hon. JOHN L, MCCLELLAN;Ohai'r11W-n;, Subcommittee on·Patents, Trademarks, and Oopyrights, Ben.ate com­

mittee on the Jutliciary, .Washington, D.O.DEAR SENATOR MCCLELLAN : I am writing'you to 'express my personal views,

and those ,of the General Electric Co., concerning .pendlng legislative, proposalsrespecting 'Government patent policy. I .respectfulfyrequest that this letter' beincluded in the record of the current hearings on-these matters.

No 'company has-a longer history .or .nuccesstul collaborattonwtth 'its, Govern­ment in respect to research and development for the national defense than does

(i)/J.'he,·Water,;Itesources Research Act of 19f?4(78 Stat.)329) is', amended'by strfldng cut section303.::., , ")",, ,;~~-:

UJ The Appalachian Regi.onal,I)evelopment Act -of ;U)65,.(79:.;Stat.. ,2()} isamended by strikingontsection BOOLd).

EFFEOTIVE DATE;

SEC. 12. This Act shall take effect oil the first -day' of the tourttimontnbe­ginning after the date of en,~ctment of this Act.

GENTEX CORP.,Oarbondale, r«. July 2$, 1965-.

CHAIRMAN, SENATESUBCOMM1TTEE ON PATENTS, TRADEy:ARKS,AND COP'Y:liJ:GHTS,.lVashingtoni·l)·O.

DEAR SIR: In reporting prior proceedings of the Patents: Subcommittee of theSenate JudiCiary Committee remarkswere a'ttrtbuted-tn.you- which indicated agreater concern on your part-for. the ethical implications in- patent infringementthan for possible material-losses.

I am in complete accord with your viewpoint, and in a Iongt-hlstory or con­tentaon wttnvertous Government' groups.c thlahas been 'oue prectse position.

The appropriation. of 'data either beroroonarter a patent Istssuedwnen.sub­mltted 'in -- confidence -or when confidence; .lscelearly.dmplted, constjtutesc.dn mybelief', an appropriation of intellectual property:,-

The fact that a material loss maybe involved is incidental the larger issuewhich you have cited. The practice ':is' not.rsoiared, is not unimportant. Webel~~'V'e"that it ts a vlolatlon o,f;prope~business practice.

, As .prestdentof .Gent,~x:<JOrp.,.. ~. aeSi;re'in this context' 'to present to' you a 'brief,resuroeqf, soIil,eOf,this' c.QrpO-,i·,at!o,~',s·'exper~enee.with,thep,epai1:mentof 'Defense,'partlcularlyfu relrttiontothe'~ppr()p#lltj.~ofintellep~u~',l'I»:"9Pth1;y',-., .' '.'

we make this presentation'-a's'JrespOrlsdble citizens:and1HCtJie'belief that-thebest interests of the countl"Y,,:,il~,b~s~rv,ed,b3:', frank discussion. We believe thatthere should be sincere eva~u.ahon'6f'·the impact fh~ appropriation of intellectualproperty has on technological.progress.and on the patentsystem.. ,') :;'. '

Dur-ing. the .iP.a~t quarter 'o~"3; ,century the .Gentex. Ccrp.. has: been, :pp,ns~paUYinvolved in -<leveloping,products,of military "interest, All .orour. deve~oPJAeIltshave -been 'privately, ,funue-,d. No Government moneys havebeen used.. ....,.",The Gentex Oorp.r.has over 200 Issued and pending.patents. lVIost'oLthesedevelopments have. been put Ito.lllilga-ryusage; .We have devised and. developedthe designs, presented the.concept .crprcduct, .and secured ,ve~ ,fe.wcontracts forour efforts tn these developments. This has b~,~.pl}rticUlal,"ly:,so .sdnce WorldWar;IL".,,:· . '. :: :: :" '," <:""',

While. we present the experience of a single compan~"Uis;'teasi;mable,.tl1a.t

the same experiences could -be recited by other companles.": S~ill.others may havehad their intellectlla1.property appropriated and then, being, .discouraged, dis-continued submitting Ideas. .

There Is no SUbstitute for private and encouraged effort to achieve a high rateof technological progress.. Technological progress is most econonncanr obtainedby the encouragement of privaty.initiati;vet '. This is the f0t4lqay pn ofour demo­cratic system and upon. whlchjsystem this country grew strong. alld .great.

The Gentex Corp.'s background is-that of a company W'htC.h"h~8_0Ve!}heyearsbeen oriented to meeting military requirements. Corporatepolicy is that of usingits-own funds: to finance the rlske.of development wtth fhe Iogfcal expectationthat subsequeIltprp,duction, would permit_rec()ve~-Y, with pr(}fit,for the riskedcapital. .' .'.: .,.'. . . '. " ..

During WOl'ld War. II, we had the privilege of developing and produeingv.oronly. developing, solely ,with our own funds, the complete paraChute assembly onthe following assignments: 'I'he dropping of mines; the resupply of pigeons ; thesonoouov.toe locating submarines; drop sondeforjseeurtng weather data overInaccesstble areasc essenttat cargo work for the Offlce of Strategic Services; theatomic bomb as-dropped over Nagasaki and Hiroshima.

,These were: among ,our,assigru:nents.. According to the best Informa.tlorravall­able, there was not one single reported failure in. a militaryoWration.)nac­cOJ;d.,witl;l .. ourown records,appr'O:x~~ately.. 98 percent.or.our,r€9pired, raw, rca te-rials were in the noncritical class. -',

uv ~ J..:.<J.~J."J.~J.J..:.<J."J. ... ~ .l>.J..J..:.<J."'J. ... rv.uJ.\.J J.' IVO

dYna.mic"'Go.ver1litient',pa-tentpolicy;' and for this' principal 'reasonfavor S: 789[ind'S;1809'OverS.18~9., . '., . . ......., '.' ' .. ',.. . .. '", T'note that S~ 1809:'(as well as the' other bills present!-y, under-eonslderatron)

provide thatany~iclu~ive ri'ghts, retatned by' any contra~tor,in,any' inVentionmadefn .tl:L~ performance of,Government research and development-are' eon~i-,ttonaion affi.rmati\r~..action 'taken by -the contractor, to: develop" the' inv,entionfor commel"c'.ialuses.'Tl:ms, thepu,blic interest Is protected,: and unless a con­tractor actually does 'respond to the'paten~ 'incentiv~s',and applies private 'riskeftpital,tp: these ends,the invention can be opened up·tobthers who may.

I'recognize, thatanacceptabte patent policy must prot,act the public interestby seeing that private rights are not. retatned wheresuchrlghts would frustrateeither governmental' contracting objectives or' important considerations or publicIntereset. 8.'789 and :S.1809 seek to acco:mplish'tht~bYSPes~fyingcontractingsituations in which the' Government shali'normally"acquire"principalor exclu­sive rights in inventions made in such sttuetrons. In the Interest Qif' flexibllftyS. 1809then proyide.sthllt,the contractor may acquire greater rights than a non­exclusive licens'e'in'imch:-sittiations If-the agency head certdfles that such actionis in the public interest. I believe that"tll,is-, is a sound approach' and endorse it.I suggest" hQ<\Veyer,.,.tllat SIOme clarification of the guide-lines may be use-ful. tothe .awnanistra.(or :arid\.t~~· contractor alike.

B'Irst, 'I note the'·special interest and importance or tne so-cauer coetsnurtngsituation-the sitll~t~qoIl in "",hicllfl,.~verllln:ent ,c0I;ltract, teqllire.s wO:r}{, to bedone which is only partially' funded 'by' the' Governnieht.,),t~~~~t:i~tther~isgeneral agreement tllat. there are. frequentlycontractor equttaes in .snell casesth~t ,,:,"ould:in(iiGate, contractor; .. r~tention" g:f in()re, than simply' a .noaexcjustve~icell~e: \~Il.P:~ ~s,Ug~~s~.Jhat ,S()~e, sp.~ific;i~~it~ofl:"c>,(:~l)is PDJ+ci:gle. be..'ip.~iud~;lllt:l:le.w.?"rding,o~.s.)8.0:9:',.: '" ,', .... ' ,""'.' ,""."

A specialclas!3 of,ii;J.,vention that 1: believe' de'serve~diffN'enf4al ,treatmenti.s·tha.t ,w:hicll,t;h~.:Kenn~(ly 'Pol~.~Y calls nonpnm:aryop;ject inveri.~ixi~s'.' '. The- basicupproac:h'"of, deftning contracting situations in wb.ich othe ,~v'ernp1ent wnjnor­mally .acqutre prtricipal rrgnts to' alleontraet-origfnafed)nventlonS .n:SlSumes thatmost or ,all. such ,inventionswiR be .. directly associatecl'",it~':tlleCo~tract'objec.tiV"~the desired end .. pl:'()duct-~al1d ,essential, to .the 'objective; ..·'This. is far fromtlle, ease.' Af.though, hopefully, there ~re)nventi()ns'of .thts ty~, in each majordevelopment .program, there are f:.;equenrtly ,s,econdaryInve~tion~a temperatureme;~,Sllring'device or .a. metal strengthenlng ,p~oeess,.fof~x,a-~pl~thatwere 'llsedonly incidentally in arriving, at: th,e desiredend result and are by no meansessenetai to dupltcatingthat reeulttn the future. It)s these off-the-mafnstr-eaminventions. that coften s-how the gre,atestpotell-tial for .coIDJ11erc;iaf,appllcation.However,. they. most often need Incentives ,to attract risk .capltal to: bring thisabout.' I, therefore, u.rgethat provision be made for allQttingtlleGo~tractor

m'imary rights, .in res~, to thi~ class of)p1'"ention" regft;rd,l~ss' of what Is done;\'\:ith ,j'prir;Dary-Pllrpose")llyentions~,. , . . ' " . .' . . .': ,.

~elat~4 to the-suggestion. just made, there is perhaps not enough.deflnltdon in8.1809. ofthe "pr-incipal or exclusive rights" which the, Government would uc­quire ill certain eases.,:. I>~. these terms necessar-ily equateto complete domesticand .. foreign title:Jn.,th~,povernment.. subject only to a. nonexclusive license tothe contractor ? It seems undesirable to, think in terms so ,completely black andwhbte. "Speclflcally in regard to ttie many Inventions .that ':VBl be made havingmultiple uses, the Government,cquld appropriately acquire principal rights inits primary field of intere~t-agricUlture"or. civil defense, for example-c-whtle atthe same time permitting" theeontrac-tor:.,to retain limited exclusionary rightsill other. fields, thus affprd;ing an incen~ive to bring about further development,testing, etc., to put this technology to work in new flelds." : '

Although I understand tl1~~ it .has been referred to in your current hearings, Ibelieve that the Importance of the interrelationship between Government patentpolicy and. foreign trade; can hardly 'be.overemphasized. Since World War. II,new and developing industries are emergingaround the globe, and wtth Improvedtransportation and communications, these industries are competing. in a world­wide' marketplace. The effects of. this gtobal competition .. are.beginning to befe"t, dramatically in terms of the balance-of-payments problems confronting thisNation. President Johnson's export expansion program is a slgnlflcant recog­nbtton of the importance of the abi1:i;ty of American Industrvto succe-ssfuHy com~

pete In .the worldwide marketplace.Iu relation to our national welfare... The Pl'O­tectlonfhat the-patent systems of all major industrial countries aff6rd:to'cre-

We, also .iIleluded' the' earcup In.two complete netmetssubnuttedrn conncencesolely for evaluation to the Department; (j.f~theAir'Foree. The special 'features ofwhich helmets were'cleaTly outatned in Writing.'i,~eA,ir:'FOl:ce'S'llDse,quently asserted' they' 'had' procured, the design from

Protection, Inc, This was;howeyer, 2 years' later tharr our expertmental-sub­rotsston-to namo Corp. of America. ·rrheMr Force subsequently also assertedthat, they had secured th~,design from -the Roanwell Dorp,' J,'he rcatterts now'before the Comptroller General A copy 'of the protest tothe'-'C0ill:ptroller Gen-eral Is-attached. (Exhi~it2):L "" , " ,,' ,','

In, the fields of'pl'l?tective :b,elmets, parachutes, cargo nets, heat reflectivematerial,' carrrersorItvedetonutors, -the story seeme.to be the seme-ccree.tlon,snbmtselon, acceptance, approprtatdon.

During the past year, the Department of Defense has issued"R seeiesor Defenseprocurement circulars ,which~ttempt to', cUtrify, the .ulghts of invento~s. tointellectual property.' There,appe~rs to be much' coI1fti.Sionanli lack of apprecia­tion' ()f, these policies ,at the 'Wor~n~:level,;perhaps In part hef!lluse 'of the failureof these circulars to reachthe root'of'the,Problem.. .. -

We. have been t-old'thatc~e ,sl1oitL<i".:Q.ot disclose -an idea to' 'anyone In-theDep,arl!rient'ofoDefense witho'll~'acontractcovering that disclosure. That thedlscloslfrW s~oul'dnot eyeJ:i,'bemade to the contracting Officer'until after such 8:contract 'has 'peen' sdgned;":".This is' l.Jbviou/slya .condition which Is. impossible toful'filL'" '''''',.-,- ",,--;,.-.', '----"" :""'1'>":"':·""'''''·'' .', '-- "",'-- ","",' ,,' ''-'''',' ',"---',: ',:',

In the Ugpt of. this interdic~ion,however, the Office 'of General Counsel,Department of Defense, negotiated an agreement,~ithuson behalf ofthe,Depart­ment of the ,Navy, Bureau-of 'SuPRlie:s andAcc~ts'. The Bureauwould pote:xe?u~e the 'a~Teement ,to effect aconrract, despite pressurestated to have beenel.:e:rtedby ,the 'Officeof <?-enerlll Counsel: . , . '. ,-- . .. '. . ~

-:Dhe agreement was to cover the test and evajuatton of"a ,superior· heatreflee­tive fabric vv'hichwe ,had developed. .Tile fail~ of ure Bureau 'of Supplies. andA~c()unts to enter into the agreement il1'accordanc~~~Il:t1l,e ~tipulati<?n~';estab­lished'by the Department. of Defense precluded' coristderatfon 'of the item,'--ll'hefailllredid underscor~ the tmpracttcaltty ofatteIIlPting :to, comply 'W:i,th· theprocedure. regarded' as essential to the prott,Y~tiol1.,of,intellect.ual, pr,opertY., .'

We SUbsequently. eubmltted the ,'same:heat re~ective~abri~··to.the Departmentof the Air Force,w'hich :they theIl'p~rmitted~t(),he"Tey¢ry;e engineered. Thegarment manufacturer who was,theilrime contract()r, 1in4:er, vIle'Derenge Cl Oth­Ing andTexttle Bupply ,Cent~r.i.11sed,o~r:pri'cing"f\lr,oU1~sc,va:stl1eonl.f, productavaila'ble to ttie s-tated specrncattonat ;t'l1e, time or t,he 6rigirialandeven suose-quent openings o;fthe pr~l,under'tli~invitation:' . " ' .. ' . . . ,. , , .,'

'I'hls reverseengtneermg.aswtth the survival kit; 'produced a product ~hiChwag -lnferlor. In order to make deliveries' under the contract acceptable, theessentialperformance .requlrements for-u-esistance to abraelon w~re lowered by60 percent on the' reverse engiaeered jiroduct. This reduction in quality levelwas ,without any apparent mater-ial consideration to the Government. ',' '

The precedingprese.htation details .our experience in three. specific insta~ce~.Department of DefeIls.e poHey with respect to patents and ri'ghts in d,ata:is,

how~ver,. reflected ..in 'letters .dated. Octooee 10, 1963; and October '23,::1963,attached hereto asexhlbtt 3.1 'I'hese Iebters, between Gentex and the,HonoraMeR. Tenney Johnson, then-Deputy General Counsel 'of,the Army, crystalliZe theIssues fnvolved. 'I'he corespondence.Is a dlscussicn ofa Department of Defensepolicy statement-on ;~atters,of.patent .and intellectual property.'

Briefly, there are three basic issuee: .'. , '(1) That any appropriation Ofpr?perty rights by the Department of Defense is

n vvlolation of. ,ethics·.and .. of rights, 'guaranteed under the Constitution;(2)" That the' purchase of.\'a product .resulting from' a privately funded devel­

opment by theDepartment 'of'Defen~edoesnotofitS'elfconferthe right to theIntellectual pr~ertywhich madesuch production possible;. .-

(3)' That quotations-from' nonpatent holders were:~requentlJ'lower than thosereeclvedif'rom .patentholder}~, even when the. ]),epartmenFof Defense madeaUowaILce',f?rreasona1ble royalties. .Itis pointed out that the royalty allowance isarbitr~ry;.:a-sselectedb:y·the Department of; Defense withoutan .llnalytical.deter~

mtnatlonof its adequacy; ConslderattonTs n()t given to the factors of risk,expense of development, or other pertinent crcmenta otcost.

1 Coutruned incommittee files.

-"'VJ~

INDUSTRI.AL

jr. u: -"('H

;INDUSTRI:AL:!N:trOLE6NICS "CoRP.,OolumbuS', OM?J,July,16; 19.65~

','~~A*~¥~NT 'OF

Butdecte.Senate 'bill, 1809.-SenaiOr;McC~tL:AN;Oha:ir.nwn,~en.ate 'Judfoi,a,,:y Oori-fmittefj; S'jl,bcommitte"e~.&h'patent~;,' Trademarks,

an40op,yrif!hts~-rr~hinu:t:oi~(n:q.".: '.'. > "', ."i" '.:

ri~AR, 'SE~ATORMCCLEIf:~:r(:",iregret ihfl;t ,llly~ch~4,ule:,d~,(l:,.~(}('per.n~it,;rne totestify before your committee. I have, however, prepa~~d 'a}sta.tement;?n,theappropriate numberqf _~()pies,.,:Wh,~ch.1,would .llke fncluded as l)B:l~ .():ftlle:rec,o:fdof the·hea:r:illg~n,S,en~fe,bilL~8.o9:,:-;":.,,..'. , . ". c," ,

Lwould apprectate receiving',a, <;QP,y. o~ the llearingtestimo~y~Sincere-IT, "," .'. ',;':' .' -,','"" ":';""''-'',' '. '.'

,. .; .' HEl·nt!'R. OR'OPE;" F1:I!ecU;tiv~ Vice:'Pr(j'sid.ent.,

Jl3.1 :r~le_:lri':t~e'stlccess Of" thecompany's patent pro~r.lim~'..' .r,rhere'W}l'S·no !lack' ofeffort to:t>romote, them', .·b~t 'for, Yarious,PI'~ctiC"a'l.aiJ..d',cOml)le~ial"reas?ns, "theeffort did "not succeed.. 'Moreoveiy Ilcensesunder- them haveelwavs been .avatl­able-to .anronewho.thought he could succeed.

Under'the.circUlnstances, we strongly 'urge the passage .of your,S'. 1809). Wewoutdprerer to eee it strengthened in certai~are~sto 'make more certain ourunenCurnbered,right to Inventions, which'ill'e .veally'th'e result of our own exper­ieu,c'e, knOw~110,w;. andcapital. We 'Wouldbe pleased to offer specific suggestionsfor!"am~no:ment,.,~lioUldY0u·So desire.:" ""'j{~ ·'t?:~.1899, :we think -It fundamentally. erroneous.In philosophy and' a: seriousdange.r,t(l,~:~n.lthY''d.evelopme-ntof Inventions in the: public and pr-ivate-Interest.

, Respe·Gtt:ully,. . . ..... .... .' .', .. " , L. ~,DoDDs;'YicePre8'id_ent..-:o

:aElN~.Y·:.:R.:'btdp~,: .. Et*,icui,;i~E ',VrcE,'l?~siDEJi'l';ffv,C'~,EON-t9~:'p0:R!'; ;.'Q9!'1l;MBi:r~ ".q,¥~()

On behalf ',of lii<.l.u.stri;alNuc.leQmcs 'Corp. of -Columbusa Ohdo; I am pleasedto have' this 'oPpol'tUh1ty to present·:thi's.;statement'for consideration hy theSenateSubcommitte.e':'0'll Patents,' Trademarks, 'and Copyrights. This state­Illelltis submitted in, co~n~tion with Senate 'bi111809' (McOIellan),. ,proposinga.'uniform Il'a£ion~,l.polic:Y'With,respect-to Invenctousreeulttng.rrom Government­fund,ed:,r~sear,cli.~nd'<c;l:,evelop!rient.

We .-believe' that 'the~esta'lHis:ll!1:ne:nt.:of.'a uniform Gdvement· patent policyIstmportant 'andw:illhaye faT~reach~g ~ffects on the Amencan-eoonomv. 'Webelieve that a ,:prop~rlY worded statement. of legislative intencsand-polley isne'~ed .to Implement .ande,xpand· 'the President's memoranduzn on' GOvernmentpaten~policy ~ated'·0ct.oh.er '10, 1963,aIld t~at most ofthepro:Vi'siong,;'ofS.1809 ,'are', approp~hitely'direc~ed to, 'Protection'or the'<publlc interest,' withoutsti~n,g, free,.' enterpris~."T 'am :t,h~refor~' D:i:aki~ng: thiS' stiite~ent ..on •behalf, 'Of:In­dustria! Nucleonlcs'Oorp. in' generalsuw?rt'~f the'McOlellan,bilL

Our company is perhaps unique in making; use of'a new.famflyofmauerialsdeveloped .. entdrely at ..Government .. ~x~;ns~narrr,elY~-, ,1l~·WicI:al,r~4i,oi~.?topes de­veloped and sold 'by the .A.tomicEriergy"COmmission for use in .commerclal elec­tronic, measurement .and control ,systellls,: developed, almost .··entirely: at .p8-vate~xpense:·iby.AmercicanJndustry.:Wehope 'thaCa: brief, history .o.fthe develop­ment a:ndp-ro.duct-s·.of, oueccmpany.iand ai'Qrief,-staten:;LenLof.:s()m~..of OUT.rec~~specific' problema Inseeking to, help. ,G:ov~1'l11lle.I)it:agencies,take advantage ,¢"ourexperdence .and jmow-how wtthout. cOlA'Prom,is,'lng·our:pa~JrgI'o.undrights, ,ill: in",ventdcns rand technical.' .data, may' ,.p~ov:i,d,~~;".c3,~ "l:J,ist()T;y:he-1J{fu~, to..;th1,s: ,~u,b-::

committee.;INPUS;,-rR¥cLfNiU:O~Q.NIC~'CQ~:p.>

Our".C();l}lpany wasfq~~'ed'>orily:.'15:-y~~ts,::ago:'in c.oi~ril~#,. Ohi&;' by threeyoung engtneering-science ~adua~erof .Which I was on~·\V-ith ver~li~tlecapital OJ:' prior. business ex:peneri~~.. ~.)3Y:~t~t()f :hal'dwo-r~ ...good fortune;and some prtvate flnanctal backing" our' company h,a~. v~ryiec,e,I,1tlY grown outof the "small buslneas" category.' We' presently' have approximately 600' em­ployees of whom over one-fourth hold engineering or scientific college degrees.

IUt:! UVV.J:!jtil"tlVU1J.1"'T'rAT.J:!jol'l",L" 'rU.LI.Lv-.L~'

General _Electric Do, From its vital work .In. submarine' 'detection in :Wo'ridWa,r'I,:to~Oits'equaUy'vitill'roles in the- development' of radar; jet engtriea--andatomic energy in and after World War H;-itseooperationwithGovernmenttnthe natdonalJnterest has been continuous." 'where national, security has beenat .stake, -contractmg procedure has been given second place to. meeting .thenational-need. , .B'or example;, during World "War II; .countermeasure equipmentto jam' radar detected on Japanese torpedo bombers .was -delivered within: 9:days of, the" Government's'request~obviously 'without .regard-foflne :'I),OiIl.tS'Of.contractual-paperwork.", '. " ,""C'. ,', ,;: '. '.'. In-eevlewing u-esults.at, one' of 'the .company's 'plants during, the war -penlod;

Secretary of .the'~avyiiB'rank Knox.imade .the. statement :.. '·'N0. single industry,in .America has made' a .better. response,' .' a .quicker response. ·to our appeal', forhelp' than General Electric. ,. I don't think what-you've.done here' can be' dupll­catedanywhere tn the wcrld.' ":".. '"However; .'in a' time '.' when'. future:' governmental." contracting policy is:.befngstudied~as it should be-e-through opem.congressional -hearfngs; rwe beltevedtboth- 'proper. and desirable that we state; such.,views-as- our: experience in Gov­erllmentresearch· and- developmeIltwork has given' us _respecting patterns' of,con~ractillg:,which we -consdder to befn-the public, interest;

'AS: general' -manager: of the Atomic -Producte.Dlvtston of the General ElectricCo, 'during the .earlyupostwar period; and 'as .etee president-engineering: of thecompany' since. 1960, 'I -have had a '. deep. Interest in;' and concern :with, both. the:backgroun,d matters' referred to ubove. and the issues discussed below. '

T am familiar, with,theapproachesrepresentedby. the; several.bills .pendingbefore the Senate's Patent, Trademark, and Copyright Subcommittee: in Its.cur-,rent.heartngs and believe: that ;~he prefer-red' approach to. solutionris 'to .be.foundin ·S. 1809.' I:.construe" this, bfll': as onevwhlch.rplacee. maximum -reltance •onprivate development of .inventions whtle-reeognizlng-areas of .special ".natlonalinterest which may require a m~asure of public control;'; Patents are pieces of property,' justlike land and buildlngs.ion whichventure

businesses are built. Patents in -theupublic.rdomaincare -just.i llke anycother.publtc.property-c-pecple. don't 'build .businesses -on •them; It cis very' true .• that­.some public land and some: public'buildingsare,needed~society, as a whote,uses them. But patents 'are dtfferent-e-they.rare either" used. for: business .pur-poses or not at all-by anyone. . ... , ..,

Government ritself bas .no need. for', therexcluslonary powersaffo-rdedby,patents. "Government does not need power to exclude others «trom using, Inven­tions, 'nor would its doing .so. in any wayadvance the governmental Objectivestn-'funding, research .. and, development; .the. work of Government,. or, .the publicinterest.

Research for-ftselftdoea' no goo-d. The·results of research do good when theyshow the way to goods or services that soviety values. Much research can onlyresut. in. showing .that certain materials or equipment, ·if made available, wouldbet useful. Privately owned patents can be' 'incentive' to business; to make themavailable.

Although.rsome. minor. partcof results, Of::G{Nernn1ent~fuuded research anddevelopment may be readily usable in commercial products and services, it isusually the case-that-much 'more money and-effort is required to develop aninvention for .commercial use than.dssspent-in-the .origlnal-research. Extensiveproduct and market development;'. including engtneertng. development, testing,evaluation;' and •marketing . effort; are essential. to move "these..items .Jnto thecommercial marketplace, and it is essential that private risk capital be attractedto accomplish these difficult and speculative tasks. Public. funds and.uesourcesshould-rarely.be. used .to ,undertake this kind of commercial risk venture.

As President Kennedy. said in his-statement of Government patent policy:"The public interest ina: dynamic and efficient economy requires that effort bemade to encourage the expeditious development and. civilian use of these inven­tions. Both the need for incentives to draw forth private inttlative to this' endand the need to promote healthy competltdon in..industry must 'be weighed inthe disposition 'Ofpatent rights under Government contracts."

In :myrunderstandlngr.the underlying philosophy and.approachof S. 1809, (andof K 789'), as in the case.of the Kennedy policy, is to permtt private contractorsto retain limited cornmercialirighta wherever-such rights are likely to. provideneeded incentive to call forth- risl{'capitalforthe further development andutilf.satlon-cf-technology. I, believe this to be the keystone.of-an.effective and

guage of the contract. A complete copy of the pat~:nt,p;rqvI.siqn:sA0r:-,,~acR.p,f:t~.~listed cOll:tr.~c~,s is,JoVn4,In,appen.dife~:I, tQ. V;. '':C~U. Niivy' Deluir'trn;ent

OIl'~JuIle.,23'r;1964~,:Industrial,' Nucleonics, Corp. entered -dnto a', contract ,withthe])epartrrienJ of Navy, .Bureau of Naval Operations (contract No. NOw'M-:­O~l-:-f)f()r thestudz of various nuclear techntquea.to measure the corrosion ofa,lIletal coatedwith paint., This study,. involved ',~he, use of- considerable back­ground technology developed by- Industrial"NuCIeonics'Corp., including .equtp­ment andknow-how. ,'The contract patent provisions ,(see appendix I) providedthat Industrial .Nucleonlca could obtain an esctusrvc-ncenee to, any inventionsconceived or made under the ccntractr.with a nonexclusive, .free license to theGovernment. , Such a study contract concetvablyopensthe door to the privatefiles of our,company.and is very dangerous,to'accept without some positive incen­tives-. The contract provided the necessary-fncentdve by holding outfheoppor­tUJ;lity to, utilize the information' and inventions developed for commercial equip~

ment. ,Industrial Nucleonics' accepted. certain undesirable" aspects of the, con­'tract, because' of the protection which' would be afforded on inventions whichcould have com,mer,cialuse.B~ Depwrtment ofAir Force

On June 25; 1963, Industrial Nucleonics Corp. entered .into.a. contract withtheDepartment of Air Force, Rome ,Air-'Development' Center (contract-No.AF30(602) "'-'--3-123) for the evaluation of a system;'for trackinga missile during launch'The system" had been.conceived. hy Industrial. Nucleonics: COrp. prior to the con:"tract and involved the use of nuclear.technfquea. Patent applications' were' flfedbefore the contract on several inventions .relattng to mlssfleIlft-off measurement;The "contract 'patent 'provisions .neee.npnendtx II) made nororerenceto back­ground rights ;·'i.-e.,.a license' to' the Government. in these-inventions',irfespective-ofwhether theywere flrst actually reducedto.practtee -underthe contract.i.Inven­tionsvdeveloped -under- thercontract .were.a-eported tand the' patent provisionsprovided."that an excluslverltcensewould ;,be:. granted. to us.cwithaaItcense to-theGovernments. , 'I'fie.incentfve for ofjertng.our.dnventions to-the Govemment.for-pos­slblefirst' actual reductlorr- to .practice.under a further contract 'was, that -Inven­tdons resulting -rrom. .the.intttal contract and ether-contracts- would' be· available;protected.by-an -exclustve .ucsnsa,. for commercial. development. Agaln.t.Indus­trtalNuclecnlcs .Corp .:utfltsed. a great. deal-of dtatechnlcal: know-how and equip­mentto perform' the initial contract..'. The~Governmenthad to' come to IndustrialNucleonics Corp. not only for the technicaLknow~how:butfortheInventfona.thatcould have solvedtheir problem, "

:d,'),T(]'iidnal..Aer?~ti.a8 a;Ul',8-pd:6(34atntn48'trNfio~ , 'On June 24,1964,.InduStrlal Nucleonics Corp. entered into a contract with the

National Aeronautics.and-Space Administration. (contract No. NAS Srt-11736). toevaluate, the -errectfvenesa of, cryogenic propellant .tank vent systems' operatingunder ... 01'·. neareero...gravity:· conditione, This:,contract, Galled fO'l~.a, wide. rangestudy of techniques for solving the problem, with specific emphasia.on-the.ap­pllcablllty of nuclear measuring devices. ,Our, special .teehnology and-know-howin, thisfleld.was the reason for our recelvtngttie ccntract. As a result of-the COIll:­tract, several inventions were conceived and r,eportedtothe,(}o:vernment."We arepleased to have been able to continue the work llllder'.3:new .contract throughDouglas ,Aircraft, sponsored by NASA.. .' . .' . . '

The inventions conceived. under this contract may have commercial applica­tions; Industrial, Nucleonics realtsed. the-potential valueof the developments,The patent provlstons (see appendix' III) .provfded fora 'petition of waiver-ofrights, which has been filed by Industrial-Nucleonics Corp. for each of tile Invert­

"tlons. -Without- this, opportunity to obtain commercial rights, it is seriouslydoubted whether our corporation would have' assumed such a small contract(abollt'$18;OOO) to reveal 'en of-the techniqu~:andknowledge:that we couldmuster-to solve the' GovernDlent's problem. It.was the Incentive for'.deyeloIrment.or a commercial system tbat causedue-tc reeime advantages of outweightedthe disadvantages, primarily due to thefavorable patent provtsions.t r.Itdsroui­understanding that NASA is reasonable in its-granting of such a waiver and ourhope is that our corporation qualifies for it. 'Webelieve our company should qual­ify, if any corporation in the United States can qualify.

D~;A~om"ic;'Energy' do.Jnmi88idn'On or about June 1965, Industrtal Nuheonics 'Corp: obhiJ.bed "ii" develormient

contract with the Atomic Energy Oommlssion (contract No. AT,:(11..,.:!-,);..;,.....1471) forstudy of the use of nuclear techniques and 'sYstemsfo:rwaint:aWipg: l1eli<:opt~r,8 ina desired formation. We had.submltted a proposal to the AEq whtehsuggestedseveral possible systems. ",Apparently the ,AEC.was quite impressed,with our.pro­posal and..obviously, the, need-for .such a.eestem is very.great, in view of pre­sentlylnadeql,la~i~y§teIIJs>,·for.:,J,l1aint$ling"helic.opters"In fO;rplat:iQn i:t;l badweather. ' '''",', , ',' '" ,,' , ' .' '

Theconrtract was preceded.by .Iong .audstrenucua negotlatdonewlth the AEOconcerning patent: rights. "At timesQ:ur: judgment suggested that we should notaccept a research and .development, contract froon the AEO, in view orf unfavorablepatent provisions, Ini:tjally, .the AEC people: gave us little .hcpe that concessionscould be made as far as patent rights were.concerned.dn view of AEG's.policies ofobtainingbackground license rights' as well .ae alftdtle and rights toJnventlonsrelated to atomic energy, , .Slnce thta ;experi€iILce"was our first encounter with .the~~O, we were a little nneertafn as to .how tllepaten,t,prpvisi{}lls',wouJ,d, aifectourcompany. . . ' " ;;':>"';

The patent provisions (see app. IV) which were eventually. o~tained clearlyshow how the AEC is unable, under present patent policies," to promote thedevelopment of nuclear technology and systems ,for commercial applications.. Un­dertthe.contractr.Industrtal Nucleonlca-firsf had to grant 'to the Government abackground .• license: in .njj .inventjons: which -were .made. before the .contract .andin ,any .way.fnvol'sed .in', the contract .worlr. Obvtouslvv.thts provision raised aeeetoue danger .toe.us in guiding our engineers as to .what to embody in thecontract work. ',The AEG certainly could not-expect us.to use all: the backgroundtechnology we-have.. -Ooneequcnnz. the-Government.had the risk of recedving-Iesethan. it, might have obtained, under. amore favorable contract .arrangement,

Another aspect ofthecontcacnnot soapparent.to- us' at first, 'was' the raet that 'Industrial Nucleonics: would net-be table to ootatn en. .esciustve license for com­merclal use.dncanytnventdons .useful. in, the field of .atomlc .energy.' 'I'hfs.meansthat-our: company, .basicallv.devoted co the developmentoratomlcenergv appltca­tlona-cannct under present policies and,statutesrealize.excllisivepatent rights toinventions arising out of work performed'under·AEC,contracts·foruse in the fieldof' atomic energy.."GertainJY,.·this"leaves small tneentive roranr ,company -wirthsizable 'private technology to deal wtththe AEC. More serious, from the viewpointof.the.publtc interest; is the factthatthe,AEGjs unable to realize greatest benefitsrrcm.Induetrvts potential contributions",

In this particular AEC contract, the Utype C" patent .provisfon wasvei-r.care­fully worded so that we obtairl,e~ all .exclusiye l~cens~onlyjIlinventi0lls "tn­herently .capable of a use other m,an in the pro~uc~~onerutilization of nuclearmaterialoratomicenergy." Unraveling this language : we could obtain :a:nexclusive license only as to inventions outside our'<pi-imary. field of commercialinterest; Furthe~; such license.waSlimited to the use ot tnetrieention "for 'appli­cations 0ther',tllan use in the production O~ utllfzatdon of special-nuclearmaterialor atomlc energy/-,'. "'.., .. ' .'.' ,','

It is' quite apparent that 'Whatever exclusive Hcense righte are obtained underthe present "type ,0" AEJO'patent.;provisions, they are of very little value 'to ac,orupany,~ our c~mnlerci~\':p~Siti:0!l; ,]j}; Federalil'viation .A.d..-1hini8tr~tion , i.; . '.' '. .'

While ouc compans--baanot yet obtained a contract with -the FAA, it 'haspresented several bid .proposals. It Is. our understanding-that: the FAA followsAEO practices very closely. This, fact has eaused us some reservations in follow­Ing up possible FAA contract opportunities'. '.' .In.addltion, the FAA Informed.usbyletter of May 12, 1~56 (see, app. V); 'that it 'would not accept any, proposal forevajuanon if marked. wtth a.t'proprtetary data'r.stamp., ;"This has caused us fur­t'4er·restraint, In submlttlng.any Ideaa.to-theFA~'siricejtjsour-normal: policytomamtetn a-confidential status. for .thesubject .. matter, to. prevent creating asta:1;u:t'l).rYc~bar;.·, Qtber .. Govemmenf agencies donot appear tohavethis restrictivedlaelosure practice.

~21 '.. .-' Ot~~rfiel~S,. :

¥!w're.ceive exclusivelicense: ,

Same.as.above;¥ayre~iv!il~xclusive:, '

license.Ca:ilpetitiop for,waive,r

of rtghts.: .,. J

Background rightsto ,Gov.erIJll!.ent

rriventions mide'or 'conceived under contract

'121 atomfc ene't'gy.fl£lil

N~ne,~~e~s .~,~';f'a4f: 'J\1a;'-r~~i~()' exclu.,S~ye',s~~ol~a~~;re~c'~ i~ ~,~,~ ~~, s~~abOv~ ::~ .; .; ~,~:. c,jRequired.;.L_~~:"'.~_.;c c~" ~~ ;.No-rlghta_l, ~~__'~c~ __~c~;

None; UnIe.ss Sp3ciall:Y Can)etitiori forwaiverriegotiated~ ; of,rights.

Navy (DOD)_~ 7cc~n__

AF(DOD)'L'~ C~n_A·EC l C~~~ ~ ~~__~~_~c' _

'NAf3A~. ~ m _m_._ ~

Summary »t p?;esertt patent rif/ht8Ai8tri,lJution" ,a,8 a c()n~'(aptor itI" tbe .atpmiqe?1terUy j ie;l f!: ,'Qi ew8j t . ' ' ' ,

;AN.ALYS~S O!SENATE)iILL'·is09

We have carefully studied Senate l>ill.1,89~. It seems to resolvs-manyor-msdifficulties we have experienced In-worklng wtth the Government and in pro­viding .full support, using our-aubstantlal priyat~-:.t,ec:l:t:Q.olqg.r. -Oue..reason ,:whythis bill meets with our favor is that the patent practice of each-of the-Gov­ernment agencies would be placedun the' same basts.j.ret. wtth, some. fle:x:ibility.

as.potnted out.abovefne 4-EO is: completely different in Itapresent-approachand this has seriously affected our ability. to contract with the AEO.;.· ,We:respect­Jully. submit that .tlle:,presentAEC patent. policies, have, hampered the, develop­ment of atomic energy for .commercial applications. S.1809 appears .to followSUbstantially the present patent practices of NASA and to provide some flexfbdl­ityin a contract negutlatfon.cdependlng'.on thecfrcumstances. Hence; we gen­erally support S'., 1809.

PUBLIO BENEFIT DERIVED'E?-R..OM ,PA,TENT:,PRAOTIOE I:N:STITUTED c~SE:N::ATE BILL,.lJW9

We submit that .t11~ publtcwlll ·Nmefit'by the .adoptlonof .S..1809,especiallY· inthe field of atomic energv, "As pointed out above, Jt is .presently not possible.fora: company with substantial private technology and prtvate inventions to workeffectively With. the A.EO withollt. giving up some of its own rights, .especlallyif the subject matter p~scom,mercialapplications". .... ,.,'

In the alternative, :~ome companies ,may .take contracts from the .Government,yet not usetheir .beet errcrts, ,since.certain private technology wouldbe withheldto .prevel1t .grantirig ,a.licens~.,to. the. Government, .or ...mak~ng·.a .:.di~closl1r~ .. ofproprietary data to the. Government: - Of course, the risk of.im.blic .discloscreof. data ts.ajwuvs present when dealing with the .Government ;: but. the possjbtl­ity of obtaining exelustve rtghts to commerclal developments, can, in some in­stances, outweigh the. disadvantages .. ~f .such,disclosure- We believe" that.: devel­opments in the field of atomic energy ,would be muchmore Ilkely to, get into thehands. of the public under.a, more favorable AIDO. patent policy... Senate hill 1809permits equitable contract :irrangements which would -" encourage,' companies,suchas ours, to 'Yorl$:, with th~",G:oyernment.,angultilXlatelyllake·av.ailableJo'the public .the bYPl"()dllctS of )311Ch wqr;k. . !",.• , ::, ..' --.: .•. ",; .. - .j .

I :thankyou: for. tlie oPP,ort11Dity .to Pxesel1t,thi::;,iilformat.ipli to .. Your' commttteea~l,';l;J. ,ce;rt,a,~nl:y wouldpe:g~a,q.to"s\lPpleIR~Il:t) ~:l1;Y :'IloiHt(3 :\Vg~r~ f~rt~~r iip~o~D:lac-:ti,on,~~·n€!l;;~s~aFY.:, " "([' - "

BIO~R1Ptiw4":S,f~~H, )9F,;~'~ij~~R.',9~riF~" ,:OOL~1rf~is,.: ~:~IO ,;' "

Henry, R. Ohope was born ill Loutsvllle.. Ky." He. stud~eq:. mathematics andscfence 'at the Unlversity'OfLo-uisville'and 'waSgr:ldu~ted,'f~omth~, 9hio:~tateUniversity in .electrlcal' 'enginee'ri~g.'," He holds advanced, .9-,iigr,~~s.tn, enlPl1~eriIigsciences .and applied ,~hYSiC~,'.from~.otl1",Oali~o:l":nia,,'Ip:~titute:,'or." T~chno~pg;randfromHarvard,University.,:):.; ',.'\: ":";:.< ..' "",'.:, ,_ : ":.-","',,':, : .. :'"

During 'World 'War II, '~r; .Ohope served In.'"the.' A~.iIJ.ed, :rro,~c~~~ :sp~ciaU¢illgin "development and 'use-of-electronic and radar.~s(~ipm!llt.'rq~:IAe,te0rC!19g~~~

54;-40o-65-:-pt. 2--21

I 'J.U \,;IV v ~J:\·.l."..l.VJ.,CJ-":" J. ..<; n..L..l.:....,.. .L -. ........ .L.'-' ...

ApP,EN'niX,I

purpo'se's 'and upper-air radi~ti?,n, resear:c~.",HeJparticlpated 'in' many fieldexperiments and tests, Including radfationmeasurements in connection withthe atomic tests at BikinLA.tolL

Mr.Chope waa a.rounder.andds presently executive vice president of In­dustrial Nucleontce Corp., Columbus, Ohio,: whiCh: company was the first tospecialize Jp,industrialapplications of atomic energy for on-line process measure­rnent and control.. He holds seine 25 issues orpending U.S. patents in__ the fieldsof electronic. and nuclear measurement, automatlc controls, computers, anddata processing; as wellas numerous corresponding foreign patents.

He Is a senior member of .the. Institute of Electricalend Electronic Englneers,of the-Instrument Society of America, .and of the American Institute of Tn­dustr~al]Jngill~el',s. , He, has membership in" the .Amel'ican. Nuclear Society,the American Association for the, Advancem.ent of Science, Tau Beta Phi, BetaKapa NU,and the Ohio and National Societies .or Profeseional Engineers.Mr. Ohope also participates as a member of the Labor-Management Commit­tee of the. Atomic Energy.QomIll~~,sion,.the.OhioA,to.mic Energy Advisory Board,and various committees of industry assoctatlons concerned with science, tech­nology, and patents.

A.As use~ 'fn vthtsv'clause, "the following termsshall haye'the meaningsset forth below:' , ' '

(i) The ,term",subjectinvention"means any Inventton.rdmprovement,' ordiscovery :(whether or not patentablejiconceived or 4rst"actuallyredu~ed topractice either-c- ..' .. ," . . .'" '. '," '.' .

(a) .... in: the .performance' .of-the ·experimental;developmental, :01' researchwork called.for or-requlred under this contract; or

(b) <In.the performance-ofany .experimental, "developmental; or researchwork .relatlng rto the subject matter o-fthis'contl'a~t,,w:hich was ' doneupon an understanding in writing that. a contract- would becawarded:

Proouied, That. the term "subject invention". 'shall not ,~nclu~e any Inventionwhlch-ds specifically identified and .listed in, the schedule for the purpose ofexcluding, it from the license granted by this clause..

(ii) , 'j'he te:rm "technical 'personuel' .means. any' person employed by or work­ing under contract with the contractor (otherethan a ~ubcontractol'whose

responsibilities with 'respect oto rights accruing .to the, Government in Inven­tions 'arfslng under subcontracts areeet. forth in (g)a,nclCh) below), whp,I;>y, reason .or the natnreofh~sduties in. connection with .the performance ofthis"contract, would reaso¥a,bly be expected to make inventions;

(iii) 'The term "subcontractvand vsutcontractor'' Illean,any~ubcon\tl;actor~u~colltrac~orof'the contractorvand allY lower. tier subcontract .• orsubcontractor"under this .contract. ............,'" ..... ";"",,, "'~ .. ' , .' .. ' ." ... :

B(l)'. 'I'he-contractor agrees to and does hereby~rant to the: Governmentan irrevocable,' nonexclusive, and .royaltY,~free.li<;~llsf to. practice, and cause, tobepracticedby or ror the F.S.Gove~nmen.t;throughoutthe world, .each subjectinvention -In .the manufacturers, use" and • dispOSition according. to·. law, ,ofany article or material, and' in 'the use 'of any rn~thod; Such license (i) shallbenontransfe:mble,exceptthat the Government shal~,have tb,e right, to grantsublicenses. to' any foreign government 01" Internatdonaf orgariizatlon speciticall:vfor use. in programs establishe9-by, International . agreements rcr treseancu,deveI9pm~nt.. 0.1', .pr9ductio.n., of" ,w,ea,Jl0J:Ls. 0:1', "e9uipmellt .f()r ... mnt,l1ft1.: .defense,and,' (iio) shall 'urctune the 'practice" Of' subject': invention in 'the,mailUfa,ct'-1te,use, and disposition of any article or material, in the use of any method, orin the performance (}f :iny ~ervice acquired by or ,forthe .Government or. withfunds derived through' the' military' assistance program of .the Governmentqr .otll~.r,wlsetll.ro,l.1gh:the, Government., , ,;",; .~<\;"t11"e: c,6Iltra,ctorl1er~by .aselgns.fo. the,Go:vernment:9JI .the. rights that, .the,~()ntJ.:~ct.or~(Jul~)ia~e to enforce tllesubcontt.:l:j.ctor',s, obltgatfons-for the" benefit{)f,t,h,e: iGoYernm~I;J,t:. 'with respect to irq.bJec.tinventions.. If there are-nu-aub­eoutracts containing patent rights clauses, a negatiye:l'eport:isrequired., TheCOl1tra,9,tor"shal,l"no~be o:l~ligated t.oenfor,ce the: agreements of any subcontractorlle!e:~n~erJ;e~at~'~~~t(),~;Il€;,O~lig~tion~ ,I?~ ~h~ ~Jl'b@ntraGt(Jr .to the Governmentinregard to subject Inventions.

til Th~.contractor .. recogrrlzes .that the Government" or a foreigngoyern~~:p.,t

with.funds derived through themilltaryassistance .program or otherwlae thro~hthe U.S. Government, may contract for,p:J.'pperty orservlees withrespectJowhich.the -vendor may -be.Ilable to .the.contractor for .rcyaltlea for. the. use of a .. subjectinvention on account.of.such acontractv. ~hecontractor ,further recognises 't;batit is the. policy of the Government not to Pay in connection withlts:cor.tracts:,or to allow to be paid in connection With contractsm~dewith.fuIlCls:derived

through the, military' assistance .. program or. otherwise to/0ugh. the .. U~S. Govern­merit.i.charges for use of .patents in ,which .tjierjovemment holclS)\l:oya~tY~fr~e

license. In recognition of this 'policy, the .contractcr agrees to parttctpateTnandm.akeappropriatearrangements for the exclusion of sucn enacees riomsucncontracts or ,fo-r:, the, rerund or 'amounts, received by, the con,tracto,r With, 'J:'esIie~ttoany suchchargesnot so-excluded. " ..' •. ,', ".'~()'I'E.","""Patent,Pl'~Xi,sionsotcontract.,~o.N()W,~0551",:"fCNavv).

APPENDIX II

A.. As used in this clause, the following terms shall l1avejhe meanings setforth below.: .v-: '.. ', ' :',: . . ," ., ' ','

(i):The term "subject fnventlon" means any. invention,' Improvement, or dis­-eovery Iwhether or not patentable) conceived 01' first .actually reduced to,pl'.actIceeither.....--'-,,:',,". ' " .,.",;",'.:

(u»' dn-the performance .of the .experimental, developmental, 'orrese:u.-'ch-work called.for or;required.under this contract ;01' .•. ....• :.' ,

(b) in the performance. of any experimental, developmental, or .researcuwork .relatmg to the-subject matter of this contract which was done uponan understanding in wrttingtthat a contract.would .be awarded; .provtdedthat the term "subject Invention"s~all.net. Include any Invention which ,'Ii:>specifically identified and listed in the schedule for, the :purposeof excludingit from the Itcense.grantedby this clause. "', .. ':"

(fi }. The term "technical personnel" means any person employed by .or workingunder contract with the contractcr Xother thana subcontractor-whose responsl­bllltiea. with respect-to l'igbts ac~ruing to the. Government in. inventions arisingunder subcontracts are set forth in (g) and '(h) below), who .by reason of thenature of: his ,duties,Ill::conneetioll with the performance of this. contract, wouldreasonably be expected to, make inventions.

(.iti) The, terms "sub<;ontra<;t".a,n(L'~subcontractor"mean aur subcontract orsubcontractor of the-contractcr.nnd, any Iower Jier 8u,bG,0lltl'act,qr.suOc9nt:r;actorunder thte contract. " ' .. ......., " .; .. ' .' ,,' ,:, ... .: ,,-

B. (1) . 'I'hecontractor agrees to and.does hereby grant to theGov~~nmentanir~evocalJle, nonexclusive, -and a-oyalty-free lieensl?,.' to. practice, ~J,J.d: cause,' to bepracticed "by or for. the,U~S.,Government, throughout. the world,. each.subjectInvention in, the manufacture, use, and. dispol3iti0Il.,accordiIlg ,,t9':}aw, of anyarticle or material, andJn the use.cr anvmctnod. S.uch1icen~e·(i), shall. benontransferable, ' except mat .the Governmentcshallrhave the righttograntsublicenses, to .any. forelgngovernment .l?r..international.0;rganization~iJecificallyfor use in programsesta~lished.by'i~ter~ationalagreements foriresearch, de­velopment.cor production of weapons.or.equipment .rormutual.derense.and. (ii)shalf.dnclude the practice .. ,ot subject .tnventton .in tb,e"lllaIlUfact,ure,: use,ani!d~spo'si,tiQno,f allya~,cle,or material,.,~,:p:;"the" use ,of ,~, metho,d.',.or in~):heperformance of any service. acquired. by or for the Government or witb,fun~s

d.er~ved.tlIrot;lghth ~ mi~itar.r:assistance. programor.tceGovemment ,or'o,ther\\1set1l:rol.lgh,the .Government..

(2).: With-respect.to~: '.' . ' ......•.. : .• "j: , ,; ",'

,(i-) Any subject invention madeby otherth~n, technicalrpersonnel ; .and ,(ii) Any subject, invention conceived .prior ,iQ,:but ,first actually reduced.,.to

practice .In the. ,c.o~rse or, any. of the .eipe,~,i4ttntal, deveJ,o.l)melltal"or ,r~searchworkspecified,in:(a}(i) above : , .... :::.,::', .,:';> .", ",:'

the ()bligatiop:, of :the contractor ..to ·gr,ant,: aUcellse.as, :pro:r:i.d~4" :'~,Il •(b) ,(~)above, to 'convey title as provided in (d) (ii) (B) or (d) (iv) be~9:w.. andtoeon­yey~(}rei~ll·rights.as ,pr,oy:id~d .tn ,(,~).:below, shan be, liI11it,ed -.t()::the,,~:xtenf of thecon h.;a,cto~'sri~,ht, ;t9:.' ,grfl,Ilt,the. ,sa?1~":'Yitb,out i~cl.1rl{~n~,,~ASii",pN!~~t~OH; t()! ,:gil?

" .. u ..... "",.L~"'~"'T"''''''''''''' ....~ ........... ,... ... ~__~_

royaltie&,or other 'compeneationto Others solely on account-of said grant.' Noth­ing eontalnedm this 'patent .rights clause shall ,b~deemed to grant' any licenseunderally .Inventton other thann ,~ubject' invention. ,.

C, :.:rhe: contractor shall furnish, to, the, contracting officer, the following' tn­formatjon 'and. repo,r~S':,c()llce,'rning_-sllbjec~'inventions', which, reasonably 'appearto.bepatentable: ,_' _ , ' ' _,',' _ ,,' ,: :

(I) ,A written disclosure promptly after conception or ftrst actual reductionto,practice, of each such inyention, together with a written statement specifying,Whetll~ror: ]lot, a D,.S-patent., application 'claiming the -invention bas been or willbe filed by or on behalf 'of the contractor ; . ",' -, " ' , . '

(ii). Interim reports at, lea~t :ever,¥ 12 months, commencing with: the datevofthis contract, each listing all such 'inventions conceived 9~ first actually reduced.to practice more than 3 mO+itl;Ls .p1.'io.r to, the' dateof,\lle report, 'and, not listedon a prior interim report, or certifying that there are 'no' such 'unreportedfnven­tiona: and

(iii) Prior to final settlement of thfs-'contract, a final report listing all suchInventions Including all those, previously ..Iiated in interim reports.

,D,.,In"connection :with. each,s\lbject invention referred to in O(i) above, thecontractor shall do the following: '

(i) If the contractor specifies, that aUJ;L patent application claiming suchInventionwill be filed, the contractor shall file orcause to.be.flled such appltca­tion in due form' and time; 'however; if the contractor, after having specified thatsuch all application would be ftled; decides not ,to, file or .cause to be filed .saldapplication, the' contractor ,shall eo notify, the contracting officer .at 'the' earliestpracticable date and in any event not later than 8 months after nrst 'publication,publlc uee. or sale: ' ''' ",,'. -,." " , .

(ii) If the contractor speclneathat 'a '0;8.' patent upplication claiming suchinvention "nas notbeen filed and wllk nct be filed (or, having specified that .such.an application:w.illbe"fil~.d,thereafter notifies the contractmgofflcer to the con­trary) , the' contractor shall :

(a), Inform theuontracting officer in writing 'at th,e 'earliest practicabledate of, any publtcationof suchinventlon madeby or known to thecontrac­tor 'or!' where applicable, of-any contemplated-publtcatlon-by..the contrac­tor" stating the date und.Identdty of such pulntcattonor contemplated pub-lication;' and " ",",','.'.' , ',., " .

(b)Oonvey tothe Government the .contra.c~or'~ entire, i-ight.vti tle, and in­terest in such invention by .delivering, to, the 'contrac'ting"officer 11Pon, wrtt­ten' requestsuch duly executed ,il1struments(prepa,red by' 'the -Government)of assignment and application, and such other papers as'are,deem~dneces­sary to vest in the Government the. contractor's right,' title, and-fnterestaf?J.'esa,id,and the righ~ tocaI)l:t~.Y for .andproaecute patent applications cover­ing S\lch invention thro.l(ghout the world, SUbject, however, to the rightso~ the 'contractor in fore~gn 'appltcations as provided in (e) below. and ,sub­j~ct· further to. the -reservation' of a-nonesctuerve and ,royalty-free license tothe contractor (ll~(}.' tq'l:dse:x:istillg; and future ,assoc.iated and 'affiili~te~companies, if,' an:Yl "Within',the,c()rporat~ structure, of which ' the contractoris.'1l :J),art),,'\Vhich'li~~nse:,s~all;be'~s,signable to the successor, of-that-part ofthe'co:ntrac,tor'sb'usiness. t? w,hic1i 'sucli-fnventjon pertalua ;

(iii) 'The, ~on,tr~ctor" shall furnish, promptly' to •the, contracting 'officer.'on" re­quest .an irrevocu:ble'Powe:r of attorney to'inspect and 'D:lak,e .coptee or each u.a.'patei:itappl~c~~i()n Me:q, by ,0:< l!n'.b~ha)f,' 'of'tlle ,contractor, covering; any', suchtnsentton .."',':.""; ,"', _:: ',: ',,"",,',: !",' ":,, J": ',' ':' "',',:'.""F,: ".' ;'C'; '.-

-(iv)" Id the;event the'contractor,' 'or'those:'other than t~~'Ooyern~ent;·~,e:i;Jviligrights from the contractor, elects not to continue prosecuffop 'o~:a,nY:):;l1Ch·U;S'.

patent appli~atipn file.j)~y, 01.' ollb~~alf ,of the contractor,:tl1'e'contractor 'shall sonotif!, the contr,a~til1g ,of;B(ler; nb~'lessthari:>60day'sbefore, the expiration of: the'response peri9~.,and;,u:l;l~n.WJ:itteIl·'r~q~e~t,'deliver tc tne contracting officer such'duly'executedmstruments (prepared -by the' Government)as ~re" deemedneces­sary, to vest in, .t11~ ,Gover~men~. the _,c-pntractor',~,entire. right, tttle. 'and "[ntereatin,~uch .. itiyeJ?;HqD: ;aD:9: 't~;e: ai?1JUc~ti9il~,' 's~bj~~f:to ~~e' reservMion'~s specified inD(iiP:lboy~;'and",""."",' ',:,:', ".': \~"'::d !'."".",',""'-',,:''''',''' ',:'' .. ,(v) . The:}~q]ltl;'a'c~or,s~aU deliver to tlie contracting officer duly.,exec\ited Insiru­ments fUllY',coIifirmatory'of any-license rfghtsheretn 'agreedto' be granted to-theGovernment.

E. 'rnecontceceor, .or .those .other.jthan the. Government deriving rights fromthe eontractorv shall, as between the parties heretco have .the exelustve rfght tofile applications on subject inventions-in. eaeh forelgncountry wlthin s

(i) Nine months from the date a correspondtng. D..S.·application Is flled ;(ii)Sixmonths from the: date permlsston.Is granted. toftle f(}J;'eignapplic~tions

where. such flltng had .. been prohibited for security.reasons,;' ,or .(iii-) .Such .longen perlod as may be approved by the. contracting: officer.The contractor shall, .upon wrttten request .of.cthe contracting officer C,ouvey

to the Government the contractor's. entire, rdght.. title, and interest in each sub­ject, invention. in each.foreign.country In .whlch an, app-lication has not been filedwithin the time.abovespecffledr.subject to .the reservation of e.nonexctustve androyalty. free, license. to .. the .contractor, .together with.the- right, of the'contractor to,grant sublicenses, 'which license end right shall 'be assignable to,the successor- ofthat partofthe contractor's business' to which. the subject Invention pertains.

F. If the contractor fails to deliver to the contracting officer the Interimreportsrequired by, (c)(ii) above, or fails to .furnlsh the written disclosures for.all sub­ject inventions required by (c) (i) above shown to be due in accordance withany interim report delivered under (c) -(-ii)wor otherwise known to be unreported,there shall be withheld from payment untif the contractor shall have correctedsuch failures either ten (10) percent of the amount of this contract, as from timeto. time amended, 01'$5,000, whichever i~ .less. After payment of; 80 percent. ofthe amount of this contract, as from time to time amended, payment .shall bewithheld until a reserve of, eitherlO percent of such amount, 01'$5,000, which­ever fs less, shall have been set aside, such reserve oe balance tnereor.to be re­tained unttl the contractor shall-have furnished: to the contracting. officer:'

(i) The final report required by (e) (iii,)aboye; •.. .:. .(H) Written disclosures for all subject inventions, required by, (c) (i)' 'above

which are shown-to be: due in accordance with interim reports.dellvered under(c) (ii) above, or In acccntance wttn such finalrep~rts,or,are.otherwfse kncwnto be .unreported ; and '. : "..'

(iii) 'I'he Jnformatlon as to: any subcontractor required, by (h) below.The maximum amount which maybe withheld under, this. paragraph (f) shall

not exceed ,10 percent-of the amount; of this contract 01'$5-,000, whichever ts less,and no amount shalf-bewtthheld-underithis paragraph (f}",hen the amountspecified 'by this paragraph (f) is being 'withheld under other provisions. of, thiscontract..The· withholding of any amount or subsequent paymep:t thereof to {becontractor ahall-not be construed us.a waiver. oLany rights accruing.to .the.Gov­ernment under this contract. This paragraph- (f)·shan:not·be.construed. asrequiring the contractor, to. withhold any .amounts from e. subcontractor toen­force compliance with the patent provlslons of a, subcontract;;,

G. The contractor .shallv.unless otherwise, authorized ·by, the-contmctlng cfflceras hereafter provided, include a patent rights clause contalnlngall the provisionsof this patent rights clause except provision (f) in any subcontracthereunder.of$3,000 or more 'having: experlmental.. developmental; or research-work nsonc orits purposes.v.tInthe.event of .refusalby asubcontractor-to accept such a 'patentrights clause, the contractor (i) shall promptly- submit. a -wr-ltten.fepcrt to thecontracting officer setting for-th the subcontractor's reasons for-such-refusal.andother. pertinent information .whtchmayexpedlte .disposition: of 'the matter; and(ii) shall not proceed with the snbcontract-wihout the written auhorizatdonofthe 'contracting officer. Reports, Instruments; .and' other, information requiredto be furnished by a subcontractor to the contracting offlcer-under.the.provtslonsof euch-a patent rights clause.fnu subcontract, hereunderimayv.uponmutualconsent. of the. contractor and the subcontractor {or by' direction of the contract­ing'officer),be furnished to the contractor.·for.·transmissionto··thecontractingofficer.

'H;' The 'contractors-hall; at the earldest praetdcabledate; n6tifythe .contracttngofficer in writing of anysubeontract containing one.or more- patent rights clauses;furnish .thecontracting 'officer; a copy: of -each -of.rsuch-clauses r. and" -notify .the.contracting officer when such subcontract is completed.• It.rfe.iunderstood :that:with 'respect: to any subcontract clause, granting' rights to' the Government: insubject inventions, the Government is a third party henefic,iary·;, and the, con-.tractor hereby assigns; to'.the Government all the rtghtsrthat.the contractor would'have to enforce the; subcontractor's.obligations 'for; the, benefit .of.rne, Governmentwith respeetto.subdect Inventions... If there, are-no subcontracts contarntngpatentrights clauses, a .negativereport· is .requlredvi.The-conteactor. ,shalL."llotJ:)f!::o,bli:-."

I' X":1:

gat'~4.. to'enf01:ce,"tbe;'~gfeeine.rits:','6ra'ni-s~~ont.ra~tor';~ereu~'d~r. I'~la tiIig~'to .theobUgatiollE!' 'of the>:;;U1Jc()ripl'act~r' tf) Vle:GovernmenFilI '~e.r;ard',to :Subject tnven­tfons. ,((r" 'rhecoiLtractor',"r~ogIlizes,thatthe Government,'?r·ft 'foreigIl','govern­me;DJ:,\vfth .~undsd~rived -tbrough the rqilitar.y assist~nc"e't)rogr~m -or 'ot,~erWisetlirough'the"U.S;'Govermnent, may contract fo'r proper-ty .6i-'service,s,with 'respectto which~e vendor may h~ liable,tothecontractorfor'royalties·;foi: the-use ,of aeubject'fnventtou On account .of-such a ,contra'ct;", The contractor further recog­ritses-tbat it is -the ,policy'of-theGovernment not t()'pay .iIl,connection; "with, itscontl'itcts, or to ,allow-to" be' paid" tnconnectton with' ,contracts made with fundsderived' through. the mtlttary assistance program or otherwise through the U.S..Government, charges for use of patents in wbtch theGovemmentholds a-royalty­free. license;' In recognition of: this policy, the. contractor agrees' 'to partlctpate inan'd,'make'a'Ppropriate:arrangements--forthe exclusion of suchcharges from suchcontracts or for 'the refund' of' amountsreceived by, the, contractor with respect toan'y such charges not so'excluded. "

NOTE>-,; ....Patent,' provisions' of-Contract No. AF·'30 (602) '-3123 '(Air-Force)'.

-----.APBENDIK. III

A. Acs used in this clause and 'in the property rights in Inventions'clause of thiscontractrthefollowing terms have the meanings assiglled: '

(L)' "Reportable-item" means any invention, discovery, .tmorovement or tnno­vation.whether or not the same is susceptible of protection under thelJ:S: patentlaws, which is made 'in the' performance of work under thts contract 'or in, thel~el~or.manc~ ,of, any ,vvo~'k done upon an understanding In. writing that thiscontract would be awarded; '. , ' " , "

(ii}"Made".means 'conceived, or first actually reduced to practice, and"making': meana conceivtng or first actually reducing to practice;

(iii) "Invention" means any reportable item .which appe'ars. to -fall.:within a~st.atutoryclass9fvatentablesubj~ct matter' (35U.S.C,;101 and 171) .and whichhll.sa reasonableposslbiflty of being patentable; , '

(iv) '''Subcontract'', and "subcontractor" m'eans'any'subcontract or 'subccn­t~actorof the contractor, and Includes any-Iower tier ' subcontract or subcon-tractor under this contract; " , . " , , ,,'

(v) when this clause and the-property-rfghts in inventions 'clause 'are·in­eluded-In any' subcontract,. "contractor" shall be" read-vas .vsuocontractor" and"contract'vshall be'read as.vsubcontract'":

(vi) "Person" means any dndivldual; partnership, group.vcorporatlonrassocia­tion, institution or other entity j and. (vii) '::"Adlllinist~'ator')inciudesthe'Administrator :of"NASA and his, duly au­

thordzed-representatdve., B~"The contractor shall conduct a continual review of the results.of the-work

performed under, this contract' for the purpose .or identifying reportable items andshaUfurnish promptly 'to the contracting 'officer 'a written report concerning eachreportable-item; Such report shallInclude :

(1)' 'Such .technlcal detail; as is' necesary to identify, describe, and convey anundenstanding of 'the ;nature.;. purpose; operatlonr.and physical (electrical, chemic:cal, etc.)euaracterrsttcs or-eacureportable item;

(li)A designation of -eaeh-ceportable. item considered-by.rthe-contractor toconstitute an invention j .. (iii): A'statemen,t<:which '.'sets, forth the. relationship of, each .reportabledtem

to the present contract wcrk.; and..;"';' <,(iv-)-.A statement of all apparent uses in which .eacb reportable item may, find

application. ~ ... '. . . .'','C.-In addition 'to the report. required in (b) .above, .the contractor shall furnish

tothe.contracting offlcer.withtn.L month following each-semiannual anniversarydate <>fC:this" 'contract' a summary of the review activities :undertaken. and .theresults.thereoftwhteh.shalf tnclude :

(i}; A'w.rittenr,eport as-trequired. by (b) above-for. each reportable-Item notprevtouslvreoorted :

'(it)··· A.·statement:listilig' each .subcontract containing ·thisreportingofnewtechnology-clause and-the. property rights in 'Inventfona. clause, stating the name;andoaddress: of .eaclr,sUbcontractf)r, -: describing, the:work- -to. be "performed, .and.giving the estimated completion date of each SUbcontract;

·,:;,D.:,A(te:r. completi0l"l:"o~"tJJ.e;contract w,(}r~andpl:'i()r:;tQ,fil\,alpElym,ent"th~ .con-tra(ltor,shall,furnish.ar~p()r:~:"" .: ,<,->" "",, ;""" ",' .. .: ",:, ",;

(i),)!ist~~g.; ~~lrePQrf~We,. ttema ,or,cer~ifyil1?tPllt: t~el'e; ~e~~e :~().: reportableItems i and ,'" ';,<,,',":'__";"'~" ',:";",,,.;' ,"",:' ,;_'.,",:':',:

Oi);',(Jonfirming or ,correct~I!g :pr.evipus.infQrlIlftti0.n spbmitt,ed ,reg~rding·'.sub­contracts, .or;,certifying that ;n9imch,subcontr~cts,were a,yv.arded. '. ""',.'

E., ,(1) .:IJ;leach subcontract p~:r;eu;ri(ier,invQlving,re,search,; experimental; deelgn,engtneertng.. or .developnient, .wP~·~, the ,contractor s];U~ll, 'Include th,e pr~@~JYrights r1;t il1ventiops cl~u,se"qf:f~is, c(H~tfa_ctan:d this pl~1J~~,;,except Jorpll,r,~gl"aph(f) below. , , ce'" ,;, "', _,::' ,:':: " " ," :"',, '" .'.'."

. (2), In each .subcontract hereunder ofov,er $59,OO~ ,WhiGh, calls for,Work ()~ thetype described in (e) (:1), the contractor shall, prior to tendering final payment:

(f ) Obtain.f'rom an..offlctal having authority to execute such subcontract onbehalf or the subcontractor" a: letter c,ertifyingcompliance .by th~,aubccntractorwith this 'clause and the property rights ill inventions clause of this contract ;, and

oq',Submitacopy orsucn letter to the contracting officer.(~) In the event of refusal by a subcontractor to accept this clause and the

pl;operty rights in, inventions, clause, or "either of them,. the contractor shallpromptly notify the contracting officer of such .refusal and. shall not execute thesubcontract in questi0I:l:untilprovisions have been approved in writing by thecontracting officer for Inclusionin, said subcontract.

F:' (1) Except as provided Inaubparagraph (2) below, ~{tlle<contractorfailsto comply with the provisions of this clause, or of the property 'rights in inven­tions clause of this contract,. there shall be. withheld from parment.-untn such.renures have,been corrected, either 10 perc,ent of, the amount of, this contract, or$59,000, whichever ia Iess. Afterpaytpent ofS5 percent of the amount of thiscontract, as from time to time amended, payment shall be withheld until a reserveofeither 19 percent orsuch amount.o» $50,000, whichever isIeas, shall have beenset asjde; such reserve or balance to be retained until the contractor shall havecomplied with the provisions of: this clause and the property rlghts in inventionsclause as aforesaid. In the 'event that the contractor does not comply with theprovisions aforesaid within 1 year, ~fter final payment (exclusive of the amountwithheld) of this contract, any.ariioufit actually' withheld under ·the .provtsionsof this contract and authorized .. to, be withheld under this paragraph (f) shallbe deemed to be liquidated damages for noncompliance with this clause. Noamount shall be withheld under tbisparagraph(f) so long as the' amount speci­fled-In this paragraph (f) is being withheld under other provisions of this eon­trast~ The payment of any-amount or withholding thereof under this paragraph(f) shan not 'be' construed asa.waiver otans- rights accruing tothe Governmentunder this contract.

(2)' BubparagruphfL) 'does 'not apply when, theeontractda.a DO fee, contract'with an -educatlonal-Inatltutton.r.-In no: fee contracts with nonprofit. institutionsother than: an: educational institution; ~he percentage- amount .speclfled to: bewithlleldin··subp3;ragraph·.{l). above is reduced 'from' 10 percent ·td'l: percent.

G.' The Government,mayduplicate,use,and" disclose in- any' manner.rand forany purpose, whatsoever.rand-have others so do, all .reports. cequtred by para­graphs-Ib): and. (c), or thts clause;

23. PROPERTy'RIGHTS 'IN'INVENTIONS (NOVEMB'ER:lfl.~2)

A,. ,.(1) AI), Invention. reported under •. the rep.ortillg, of .' new t~Ch~lOIOgy clauseof this contract shall be presumed to have been made by a person described inparagraphs (1) ,()l' 0(2) of section 805 (,a)of. the Natj,onlll Aerona.utles. and SpaceAct of 1958 (hereinafter called ",the.',a,ct?), .and ... under., th~"':conditi(lnl'l:"thereindescriged.. . , ',,>::: ".' """.' .' :

(2)1Vitll .respcct to. these inventions designated as such by ~hecontractor, atthe time:.of repcrtlng, .the. presumption of, (a) (1 ) above ehall be conclusive unlessthe c.ontracto,rat the .time of reporting any: .such inv~tio,n does ():ne:of .. thefollowing:. . , "" ' . . . .

(i) Bubmlts to. the contracting officer a written statement, containing sup­porting details, demonstrating that the Invention .had ;npt been made under. theoh-cumstances. set .rorth ine,it~er.:paragr~pl,J,i (U.:, or., (2). of ,s~ti~)n805'(a1 of .theact; or -. .. ,; .. ';'''',,: '," '., ... >' '",.: ... ' . '

(H) Notifies thecontractingo1,ficer of the contractos's Intention ~o file a petl­tion f()r waiver or.the rights of the United Btatea to S,u,ctt.~J,1.f~ntiQn; and files suchpeution 'Within3mon~~s.,o,f such JlotifiC'a,ti()l?-~ '

(g-j With' respect 'to' other iJiv~ntions, the ,presmnptlonof .(11) (1)' allove 'shallbe ~()nc~usiye ;1~,the,C(}~tra~tor .fails totake op,e,otthe actio~iS set 'f?rth in' (a) (2)'abcve wtthfn 30 daysafternotiflcatfon by the-Administrator thac-the reportable

_Item hasbeen ~eterminedtoconstituteauiIl:v~~tioll.,.. . ". . .B(l). 'If the contra.Gtor files a, petrtton fOJ." .'waiver, he may nevertheless flle

~hestfltement described ill (a) (2) .above.: :With'o:rwithont a petition for"wafver,' the Adm~nistrator.will ... review. the, i:n,f9rmation, furnishe-d"by. the con­

tract?r in suchjstatement and, any otlJieravailahl£, information rela.tlng-jo thecircumstances 'surrounding the -making' of 'the' invention and" will'. notify: thecOt;ltra~tQr .ofthedepision ,af? to'W'hetl1ert;he,IJ;lv~.n~~onhad been made under the

"circumstances. set. forth in either .paragraph~(l) or ,(2)" of,sectic,n30~(a) ofthe, 'act.' .... "", ... '.'.':, ' "". '. "", " ... , '."

(2},If the contractor notiftea'the contracting officer 'ofhis-intention to petitionfor. wadveruaprovlded in (a)(2) above, but either (i) fails to file his petitionwjthin the time specified therein, 'ox', (H) at -the-ulme offiUnga, petttlon forwaiver, does not rfile an accompanying ,written statement' in accordance with(a) (2) ahoye, the presumption 'stated in(.a)'(l) above shall become conclusive.

c.:Witll respect.to-each ,invelltion which becomesthe exclusive property of theUnited <states,contractor shaH: '

(i) Notify the contracting ,of!ieei.<·promptlyfollowing any public usaorjsaleJUr; thecontractor of the invention or any publication 'by thecontractor deacrlbdngsuch invention; and

(ii) Furnish, .upon wrdtten request by the' contracting officer, such full andcomplete technical and other information available to the contractor as win bead-equate for readyfranspositdon to patent specification form and for effectiveprosecution of a patent application, and,ill,addition, shallvexeeute or-secureexecution of documents and Instr-uments. as may be determined by the 'Adminis­trator to.oe riecesearr forth€!: preparation and prosecution of applications forletters patent coverfng eecn tnventtoa.

~oTE.77J:l,atentProvlelonsofContract No. NA.s,~11736(NASA).

APPENDIX 'IV

A.:.Whenever anv.dnventlon: or discovery. is made.oreonceived by .the.contractoror dta.employees in the course of or under this contract,which Invention or dis­covery.fa.Inherentlydncapable or ause other.thandnthe'prcductton Or uttldsatton(If, special nuclear materfal-on.atomic: energy.. the.contraetor. shalf.promptly fur­nish -the 'Oommtssion-with complete information thereon r and the Commissionshall, have -the-solepowervto determtne w hetheror .notand.wberea patentappll­cation. shall: be flled.rand to determine the disposition. of.the, title to· 'and rtghts.tnand to'.anyinvention:ordisc-ove-ry and any patent' application or patent that mayresult: :Pro'lJ:ided, 'however,':That .ifvthe. contract; ,when.furnIsbing-the',coD1pletemrormation. as-to. anydnverition. or -discovery .advtses. the Commission' that thecontractor will flle.at.dts own expense.isub.lect toeecurtts- requirements end -regula­ttons, aU.K patent application within 6 months of -reportlng-and designatedforeign patenta'pplIcations on such invention or discovery, subject to securityrequirements:and:regulations,the contractor shall retatn: '

(1) A,llonexclllsive, Irrevocable, paid~l.lp license for all purposes In any. suchU.S. patent application filed' by the contractor and ariy'U;S;patent Issued there-on:'alld" ,""',,",','.';;'. :""::;,; ,'." ,.':i:,:-":-' ...'

'(2) The .title and rights i:o any, such, fOl'ei~n ,patentapplications,.orforeignpatents'secured'by'the-'contractor,' subject to':"'·, > :, i' ,'-".' . "',

(I) A nonexclusive" Irrevocable, paid-up license to the U.S. Government forU.S,.g()vernmental: purposes and with the r,igl1t'ofthe'U~S.Government to grantlicens~s.to foreign, governm,eI1'.ts f~r. pur..'P{)f3es,of goveTn~entaluse. by-such foreigneovcmments pursuant to atreacy or agreenientwiththeUrg. Government-or anyagency.thereof.. ' .... "'" . ,.' " .., "" ... ; .' .' .':':'/''':''

,(ii~ .G~ant~ng, uponrequest"Ilo~excl1,1Si:ve__ roYalty~free licenses to 'U.S. citi­,zens,. and to tj.g. corporati()ns.Wh~n.715,'rercEmtor ,mor~of the votingInterest Isowned' hy U.S: citizen.s,'for"usein -tb'e-'proo:u.ction or utllizatton of-speclal-nu­clear, material ',or: atomic ,ene~?y:, and. agreeing. to. grant to .foreign. users 'andp,urcha~i'~ of,th~.J)T04u,ct .of·.'~ucl;l~:a.U~,S.licefLs~e'a license, to use or sell. such

"product to en asstgnee of the ,bus~ness~orPlailt orussurpjus. at n reasonabje,nondiscriminatory royalty ordinarily to 'be at no greaterfoyalty than contractorhas charged its other foreign licensees.

':.1.'

(iii) .. 'The .right. of the. contractor to. grant such other Hcensea in accordancewlthappltcable.statntesend regulations.

(a) Provided, That if the contractor grants any licenses other than as pro­videdin (ii) above, the same 'shall.be for reasonable royalties or compense-tion, and ,.'..:.

(b) Provided further, That if, after 3 years of the fssttance of a par­ticular foreign. patent". contracton..Its. assignee .. or .Its Ilcensees cannot demon­strate, upon -oommreetcn request, .the practicalappUcapo-n, of the subject.matter' covered by such foreign. patent, the .contractor or: its' assignee shall,at the Commission's request, grant licenses on any such foreign patent toothers at reasonable royalties.

(3) If the, contractor does not desire to prosecute the U.S. patent applteatlonor any foreign application or maintain any foreign patent, the .eontractcr, priorto abandonment shall afford the.Cornmisslon an opportunity to' take over prose­cution of any 'Such patent application or maintain any patent, ':J:he judgmentof the Commission on .thesemattera snalj .. be accepted. as final;" 'and the. con­tractor, for itself and roe its employees, agrees that the inventor .. or, inventors,will execute alldocumentsand,do :all things necessary. i)r proper to (,'arry .cutthe judgment of the Commission.. . . .... , ..... ',,' .... ", '.'

B. Whenever any invention or discovery is made or conceived by the contractor-or its employees.dn the course of or under tbte.contract.whtch ili:vention or dts­covery is inherently capable of a use other than in the production or utnteattonof special nuclear material or atomic <energy, thecontractor shall promptly furn­ish the Commission with complete information thereon}. and the Commissionshall have the sale power to determine whether or notandwhere a patent up­plication shall ,b-e,filed,:and to determine the.,disposition (}f the. title tQ,andrights in and.to.any inyentJion .ordiscovery and..a,nj'" l,)a~:rit..appli0ati(W·QrPa~~ntthat ,may resUlt:: ' .;, . .... ,-.. ,'." .. ':' .;Prootaea, however" That if the Commission determines not to file, the con­

tractor may file any·U.S,andforeign patent. application subject to the Oommds­ston securttv requirements and regulations.

Provided,.however,That the contractor in :any event. shall retain at least a sole(except as ... against .. the Government. or its. account}, Irrevocable, royalty-free\license with the sole right to grant sublicenses, under aatd tnventton, discovery,patent-applteatlon or plant.. such license 'and sublicensing rights being limitedto the manufacture, use and sale for purposes other than. use in the productdonor utlltzatlon of specialnuclear material or atomic energy. Subject-to theIicenseretained by the contractor, a's provfded fn this paragraph, the. judgment of theCommlssion on these: matters shall be accepted as final; and the contractor; for

~\~e~~~unn':e~~~~~de~p;if~~~~:;ri:SesT~:i~~p~1~~t£J'~:rr~'1e:Gt~j;!~~~~~~the.Oommtsston.

O..Noiclalm f-or Pecuniary award or compensation under the provisIons. ofthe Atomic Energy Act of 1954" as amended, shalf be asserted by the contractoror 'its employees with respect to any i~vention,(J'!",di8e'0yery made 0l"C'On~ivedinthe ,course of or under- this.contract, '. ',". . , . .'

D. Except as otherwise authorized in writing by the Conimisslon, the con­tractor will obtain patent agreements to effectuate.th~purposeaofparagraphaA, B, and, C of this article from an persons who pedorrp. any part of the workunder this contract, except such clerical and manual labor personnel-as win nothave access- to.technleal data. . -

E. Except as otherwise authorized In writing by the Commission, the 'contractWill insert in all subcontracts the Oommfseton's standard type A patent provision.

F. It is recognized that during the course of the work under this contract, thecontractor or its employees may from time to time desire topublish,within thelimits of security, requirements, Information regarding scientific. or technicaldevelopments made or concelved.In the course of or under this contract. In orderthat public disclosure of such information will not adversely affect the,pate-~tinterests of the Commission or the contractor, patent approval for release andjmbrtcacfon sben.be secured from the Commission prior to, anr- sucn-release orpnblicatfon. . .., .. .

G;With respect to each 'invention or discovery in which the, contractor is. granted the prlnclpal oe any exclusive rights under paragraph, (b) of this ar-ticle,the contractor a)?;rees. to provide written reports atrensonableintervals.whenrequested 'by AEC as.to c ,

(1) 'I'he.commerclal use-that Is, belng.made.orIs.Intended .to.bemade of )~,u~h

Invention or discovery; and

FEPERAI.:AVIATION.·AGEN(rY,,Wa81~~n!!t,on).D. (J.,May!2,-.196,5"

(2 r The' steps taken by' the' 'contractor t6bdng: 'the' invention" to a .point ofpractical application or to make the;inv~ntionol~'Ais(;overyavai1ahlefor, licensing.

Hcwtth .respect to . each invention or'. discovery in 'which the contractor isgranted the principal or any exclusive rights under paragraph B of this-article,the contractor agrees to land does herebygrant the Commission;

(it The right to require the granting of nonexclusive, royalrty-free Itcenses toapplicants. on anY;Stlch invention or discovery unless the contractor, its trans­ferees, or: assi~rie,e-:s demonstrate to .the Oommlssion, on request, that the con­tractor.. its.tr~IlsfereeE; or assignees . have .~a~en ~ffective steps within 3· yearsafter a patent .issue's 'on 'such invention or discovery to bring the invention or dis­covery to a point of practical appllcatlon, or have granted.ltcensea thereon free oron reason~bl¢ .terms; or can', show cause why' he, his trauererees.cor assigneesshould retainj;h~,principaf or exclusive rights for R further' 'period of time; and

(2). The right to grant Iicenses royaltY-~'ee'ol;'onreasonable terms to the extentthat the Invention .cr discovery is required for public use by governmental regula­tion,. or, as, may be necessary to fulfill healthneeds; or for otherpublic purposesstipula~edin this contract.

I. In addition to-the eights of the parties under the foregoing paragraphs Inandto tnventtons or discoyeries,madeorcollceivedin the course ofor under this con­tract, the. qont,ractor agrees to and does .. hereby grant .to the Government anirrevocable, nonexclusive" paid~l1-plicense in and. to any and all inventions ordiscoveries' of .the eontractor made, developed, or acquired prior to or Oll theeffective date of expiration or completlon of this 'contract, which are incorporatedin ,any conceptu,aldesignor prototypeful'nished under this contract :. (a) tomake, use, .and to have madeand usedthe invention or discovery throughout theworld',.for. U.S:. Government purposes, for use in helicopter formation keepingsystems, and (b) to sell and have sold any artlcle.unaterial, or-product embod:vingsaid Invention .ordtscoverv, and .acqulred or used under, the foregoing license,assurplus or condemned public property as provided, by law., .Provided, howe"er,that no license is granted herein as 'respects any Itemwhich.von the effective dateof this contract, is a standard commercial item-of the contractor.:' The acceptanceor, exercise by the Government of the aforesaid 'rights and license,Ehall not pre­ventthe Goverrimenta.t 'allY time from ,contesting the enforceability, .validity orscope of, or the title to,anY,rights or patents her.eiIllicensed.

All drawings, sketches, designs, design data,' specifications, riotebooks.itech­nical .and' scientific data,.and all photographs, negatives, reports, findings, recoin­

,mendations,data and memorandums of every. description relating thereto, as.well as all copies of the foregoing, developed, prepared or furnished under thiscontract, . shall. be .subject to Inspection by .the' Commission at all reasonabletimes .• (fOl': which, inspe~tion: the ,proper facilities shall. be afforded the Commis­sion by the 'contractor and its subcontractors), shall' be the: propel'tyof~,he

Government and may be used by the Government for any purpose .wjiatsoeverwfthout,.,any claim on.. the. part. of. the contractor, and its' subcontractors andvendors for,additi?J1alcompensation and shall, subject to the righto~ the con­tractor to retain a copy of saidmaterialforit~',OWll use, be delivered ,to theGovernment, or. otherwise dispo~d of by the coutractor either as the contract­ing officer;ma:v,fr.om time to. time direct during the progress of the work or in anyevent as .the. contracting. officer shall direct upon completion or termlnation ofthis contract. '.T4e cO,Iltl:actelr'.s right .. ofretention and use shall be subject-to thesecurity and patent provisions, if any, of this contract.

NO'rE.""""7Patent provrstons ror contract No. AT (1l-:-1)~1471(AECr.

'------:A.PPENDIX·V

INm:is,TRIAL NUCLEOl'ICJ8, CORP.,Oolunvb1~8, 'O~i() -(Attention: Mr. Charles Badget.)

DEAR J\'IR:. BADGET:I' wish to thank you for your consideration in forwarding'd copy of your "Proposa'ls for Digital' Barometric Pressure Sensing Device UsingNt1.cleonicTecbniques" to' our :Agency.

A policy within the Agencydoesnot permit us to review.any matertaj which isproprietary in nature; We respect the rights of the firms-with whom wedeal

,,··· ....cr

and treat the proposals in an ethical manner, However, we.flndIt.necessary toreturn any proposals .wlth a proprieta:rY' ,stateDl~n.t .to the:, ~-llbm~tte,f:"vith~utComment and without a review on our" part. If you de-siXe to deletet9-~Pr:0pri~tarystatement and ,to resubmit: the .. proposal, we ,.shag, constder- it,al,ol1~ ..},:~th othertnrormatton tiha't.we.have received.on the subject. ,,' . ,

Sil1c:erely.,yollrs; , ,::< "<, "<:... "EDM)!ND,B,RO;\~.LEY".Jr.".

Ohief, Support- Systems Bran(}1~, " .' ,",E~~irQnmenJa:l.Deve,lQprJ1,(71'1ct.D{pi,Qion,

Syst~~e~f!(Jr?1h~~'/,.?: I!ev.el~pln:,o/'/,t!SJ3lw:w.e.

.r.w, BiRR:E~STOOK" ,Vipe'Pres'idet1:t:

IN.T~NATIONAL BUSINESS MACHINES·CORP.,Armonk, N.Y., June 2,1965.

Hon.'Sena tor JOHN L. MOCLELLAN,Ohairman" Subcommittee on Patents~'Tra(iemark8, ana Oopyright8,OomrnUtee On

the JUd,,0ia~r1/"TlB." Senate" lVa8hingtf(1'l:; D.O.lV!yDEAR ,SENATOR: :J"wis,il,tQ.off,ermy endorsement and SUtPPOl·t of the general

prtnciples .contafned In.your 'bill ,S'., 1809.As you may recall, .Lendorsed the middle ground approach of your previous

bill S. 1290 in my 'letter of May 7,19'63. '" In -my opdnion, .your present.btll repre­sents a substantfal improvement oyer ,So 129{))n assuring che contractor' O'f aroyalty4:reelicense and 'pl"ovidillg ~()r a determtnatjon. of inven,ti'on"ri'ghts atthe,time or ccntractlng. . . . . , '. . ' .' '. " '.'

I 'suggest the foljowlng additional. Improvements for yourconsiqeration~1. ,Where a contractor has filed a patent application, or obtained a patent Oll

an invention prior to entering into a con~ract,>uhe Government's right should'be limited to the normalnonexclusive atcense, even 'tllPugh the: invention is firstactl1allyreduced'topracvke under the contract., .'. . .' .'. ..' ,

2.. 'I'he-Government jshould dedicate the inventions it acquires to the publtcrather than entering, the business of 'licensing Its oatsntsona .. royalty .bneis.

I hope these comments will be,,:()f asststence to rou tnresorvinz thi's complexpl~oblem andwtshrouutmosc success in tbisb~l1. '

Very truly yours, ' '

U.K SENATE,SELEOT 'COM:\fITTEE oN'SM,AiiB'uSIN"Ess,

'Juliy' H,"'19,65.Hon,' JOI·rNL.l\tcCL1~L~AN;Ohairm(lt}'/", S!"bcomrJ1,-ittee' on,~iite,nts, Tradetnfi:rk8', a·nd ,copyr-ight's,. f$e1ia,te Jttdi-

c:ia-1-YOornmittee;Q.S.' ~enate;Wa8hington, D;O. . .": ...."..,.J)EAlfMR. CHAIRMAN: Mr. Howard Forman, an indl.'tstry witness, appeared be­

fore your. subcommittee on July 7.. In his testimony he quoted from a statementgivenin)9.59 by a witness representing the American Patent,LaW:,Ass,ociationbefore a subcommittee of the House Committee .on.'Scieuee.and Astronautics,in which- he. submitted the names of five, companies w4ich purportedly had,' de­clined to accept contracts with NA,S'A,because·,of it's pa,tEmtp.olicy.

In this connection, it may he useful to cita certam teetlmony in 19~2 beforethe ¥onopoly Subcommittee of the Senate Small B,usi:rtess'qommittee by theGeneral Counsel of the .. Natlonai Aeronautics end 'Spac~Ad:min~s'tration. The

'foHOiWin,g,wl'loquY took piace : .. ': ." .' . .'" '" ':""'~Sen~ator"L01'lG-.PQ .. yOU .know 'of any -H~-rge':;cOllce:rn,''i''l1i01I'ha,srefused to con-

tract-with y()uunle-ss}~~y-getpatellt rights?. .. . ..,', '.. ....:"Mr. ,JOHNSON. We submrtted a 'list to, another congressional committee of

certain Instances * ** There have been a few s1lchin8ta'naes~ In almos-t. e,verycage, by the time. 'we If)er~ able.to~itdown,and talk"i~ Ot~t. 'tL'ith ·tlwm, the con~

tract was aC(Jepted/,l ,('Ernphit'sis added.)In further hearings cond~etedby 'the same subcommittee ill ~9~3.'oll th~s~m,e

subject, the fodowlng colloquy' took place' between 'the NASA "Ad'lllini'strator.and the subcommittee chairman :

vrreannes before the"SubcGmmlttee on MOIidp01y'of"the'Seiect CorilIn.itt~~ o~'sm'~hnusrness, u.s, Senate, Mar. 27, 19'62.

BRoWNE, SCHUriER',&; BEVERIDGE,:ATTORNEYS'ANn; COUNSELORS AT LAW,

Was-hington, 'D;O., A'uuust, 31,' 1965.

"Senator LON~'- * * * Now, do you presently feel that you are not able to geta suffic:~ent. number of 'contractors available tor research on your research anddevelopmentcontracts 'j . .

":Mr, WEBB. Generally, we have a large number of people who want to do work.The number of people qualified to do the highest quality of work is not large; butI think the patent watver reaturee of our law are not restricting us with respectto good contractors, althoughthe:y are more restricted than other Governmentdepartments; as you know." e

I, respectfully request that this letter be inserted at an appropriate place in therecord so that a reader of Mr. Forman's testimony will be aware of this additionalinformation.

Sincerely,RUSSELL B. LoNG,

Ohairman, Monopoly Subcr;mmittee.

Mr'.-THOMAS: C. BRENNAN,Ohief Oounsel, Subcommittee on· Patents, Trademar7cs,· and Oopyrights; Oommit­

tee on the JudiaiarYi ;U.S. Senate,. Washington; D.O.DEAR MR. BRENN.AN:' Concerning the testimony obtained during, hearings on

S. 1809, it may be of interest to point up a factor often overlooked in debates onwhat should be thelegislative policy for apportionmentof rights as between the

"Govemment and the fnventor and/or-developer of inventions- important to- thepublic welfare. This factor comes Into play when legislation Or executive policyseeks to assure by a general rule the: ptrbltc ownership for, and cancellation of,private rights where, the Government has made a substantial or predominantcontribution to the total development cost. In assuring such public ownershipin cases where there: are equities to favor that result it-may often happen, inpractice, that the private 'inventor ,or contributor has anequity which is whollycut off unless care Is' taken to preserve his private- right; ano, to respect the finalclause of amendment V to the Constitution. <

The tj.g. Government experiences a very strong bargaining position in lettingcontracts to contractors dependent onsucbcontracts for sizable portions of theirbusiness, and this position is not usually challenged. An important inequalityarises where general regulations and udrnlnlstratlve policies control individualcases-rather, than the equities of-the case themselves.. Nor is the private partyalways in a position of equality to test in court the appltcatton of-admlntstrativepolicY,since courts have .a tendency to require proof that, an administrator hasexercised his authority in an arhltrary or capricious maU,ner under a regulationbefore relief will. be granted. Against these principles governingright to-relief,supported by the sometimes overwhelming weight of legal taient available totheGovernment,- the individual or small .company finds it not worthwhile to chal­lenge ian Rc1.ministrativedecisiOll, jfbased plausibly .on a general provision oflaw ora departmental regulation.

An example arises. from closer review ~f ;fJtie case reported by Mr. walter A.Munns, .Presldent, Smith Kline & French Laboratories,. in his statement. to theeommbttee on August. 19, 1965. 'That case relates to coooeratfve work between acompany .anda. research worker who was 'paid In pareunder a grant rrom th,eDepartment of Health, 'Education, and Wel.rfare foriu-restigations of eterolds,

,for which ,'$26,000.waa expended each year for several years, but not dfrected artaH to :the subject of lbhe cooperattve work. "Who flret.euggested 'tfua:t results ofhis study ccutdbaor posstbte use as a prescription drug to prevent, Inclpdentheartattack seems nat to be eleac. The suggestion that a ,pal'ticul'a'r steroid wasworbh,f-a,r:ther investigation for liliatt.purposeeeems tOihave come whoHy fromthe company. lot.appears furtfuer thatno such, use hadbeen suggested or recog­nized.as a resubt of his contcactreporta to the Govel"il:p1ent Deparcmentc.and thatif any, suggestion was ma-de}:i!t was not seen to have.value,

:'".,... .:'II "Economic Aspects of Government Patent Polfcles.vheartnes before a slIb,c()mDlittee'.of

.the SefeetCommiftee on Small Busin~ss"U._S..Senate, l\1ar.l4, 19:1;i3, p. 317. '

;WI~~ON'R.' MALTBY.

MINNESOTA ,MINING' & 'MANUFACTURIl'm·Cb.,, 'St. Pif/ul"Minn;;J'1/-ZV'19,1965.

~,:04'}.:

Fl'omlthis point ;lJhep~iv3!te:.comp:myexpended $2QO,OOO tcevaluateohe.drugfor Ithis newan,d.urg~ll't::purpose, .andproceeded to JtJlle point:o{pro:ving its effect.and,<sai'e.ty.:in,a_n'imalrtests.... ,,'. '" ,

Nowwe .have auoncrlbucton of "a\Sul:all:!!;lu~, .certatnlv not hlgher "th:j.n"the$26,Q()03!llClcarted ,for:gellel'.a'1steroicl researoatn.onevear, which could ,be,',Te','­garded as the Government's contribution, and 'a rpriv,a,.W:,iCO,nrtr:i'bUition,SOnlEhl0tlmea.Iarger. Yet the company; ;despite .Ita.overwhelmlngly larger contribution0'1:,$2 mulron required,foT 'produclng anaeceptable pharmaceutdeal-produet was,denied-any prfvate rtghteven. though-Ita contribution might then exceed as.nor-cent of rtJhe.lt()rtal costyf<IeVelopmerirt.;: ,,:,~,

Ii~hllJS long .been urged:by many -that "the doctrine, of.enccuraging Innovatfonsand inventions .should gtve 'Way to the doctrine ,tha'the who pays for a, develop­meritshould own .dt. ''yet the-same doctl"ine.ofequitableO-':Wnership, .when,putInto.effect as between .Government-and Its ctneens.as tnnovatora seess to.assertfuR:ownershtp were private,cQs,ts'llltlY he .as much a.s5Qtim~s greate:r~ha:n)thatof,.the 'G,oyel'Q.mento,~ists anexample, .penhaps extreme, 'but nevertheless real,of '. equities .qubte oppoaite .. to. ehoseorten assumed 100 ~p~vail.generally.

,ShoJl1dnot,any,generaLI,egls1ation carefully guardcaguinst.cthe image of· aGovernment.whlehrtakes ;-away~rom its. etttzene wbec. theYmay,CQntrihute. ,atprfvate expense as weH -aeprotectlng. othea .Public jntei'estsJ

'T,hi'8:.letteris subenttted on'.my ow,nbeihalffQr, record 'Purposesin .the, hope.rthatultimate Iegfslatdon wtll. not,unfairlYltip the balance Jn ravor CY.f :bigGovernm,ent"tQ:the:ultimat~ detrlane:nt .of: rthe~eopl€l'·gov;ern:e.d. '

Sincerely;

Holl'. JOHNL.:MOCLELLAN,:OhaJirman, SuboommAttee" Patents, Trademarks,: atrI.it Oopyrights-, " U;8. 'Senate.'

Wushilngton,,'D,W' .'. "DEAR !SENATOR' MC(JLELLAN: 'IIi chednterest o~'d~J,~ifYiIlg'propOsed':piltentlegis~

innon before the Senate, the Minnesota' Mining .~Manui'{l,cturingOoc wishesfo'make a statement for .tberecoot.: expressing itself with someamendmenta forSenate 'bill 1809. These amendments are prepared fnan errortto 'pro-vide moreequitable treatment for ,contra~rs'\VIho carry out resear~hand, developmentconeeeceson ,pehalf orf the G<!vernmenb ,'. " , '. ...'

We wish to commenrttna Subeommtttee on Patents:;Tradem:arkg:,andC6py~rights fo-r',tJhe 'long extended hearings In'the interest of developing sound ,g'9vern­mental cO~itr~ct;,pJ,'~dure., oeme 'bills presented atthB,hearing, Senate 1800,'in our opinion, .offers 'tJ1le best P1"()P?AA1 fur the establishment of uniformgovern­melltal contracts in the .flefd of r,ese~rch and develoPDlent<, The" committee hasheard many times theya,rious argumente ,~ardin~'Pf\tertt :poll'Ci€\S SO, we'Y.iIldevote our furilllereff:ortsrothe ikoposed amendments; ",r: " ,

In 'Dhe definitions; section 2, paTag.raph (c). should berevis.ed to read:"(c) The term 'contract' means' any contractual arrangeml:tIl:t.set forth in

wrtting, entered into 'between 'nny Government' agency and any o:tU1er personwhere a .purpose of the contract ,Ii,s~he conduct of expertmenear, developmental,or research work, ,and the contract Involves the expenditure of Gcvemment fundsto .relmburse the contractor roe the 'conduct of the work.,. Such term Includesany a¥igIlment,suQsti,tution orr;Pai'ities,. or- subeonsraet of an,y tie:r,enteredill'to'or execueedror or in connection with the ~'Mll!l;.'nceof'tJhatc-Ontr~et."

~e~tion2, Il)aragraph(g)sh()Uld b~~il!3ed~as'(ollows: ,'" " . ," . . """~'(g) The term '.qlade:When-~use~.i,n' retanon to aDS'.imT~~tion;,means_' th~

fir$t 'actual reduetron tc practice,{jf sU)b'invehti?l1.i:Il ith~co~e ..o~or'llllqer th~.contract:" , ' '. ..', < c r" , ,,:.' • " , : ,'.' :,'., "",' ,. "

We think these changes should be"made intlie in~~~i'({ci8;ri~i~ the'term "con~ract.s~;' and .In .aceo'rdailce' with what aIJwa:rs:, 'to' 'h~ .,"tIle .d.e'sire,toreinforce. c9:ntrlJ;ct'proYision.s .iitt~~ded t(): insl1re" ~li.il.t 't:be'p.~. G?ve~nn;t.ent .reo;cetves all that it·~ys .for'iIi'cQ;nn~On':·WitlI','~ov~rnment'r~eai'Gli,:Jln(f:d~ve)oti­ment contracts-. ,~Q~ev~t;bY. tlle.',s'll,nii tolren"w~:f~rthat-:tWs i~.:a:tWo;W~Y:&t~,~t;and ,th.e Gov.ernment sli<)Jlld nofge,t' Wl!aHJt' dQ~,(n6t: pay: f&r:'.: AI:ld"afthecsame

• " "';' ,.' ',e.".-, """" ."'" "",., 'U·, .". ,". ',' ","' ,>f'" '''''""q'' .',.. '.".""'., ,',--, -";',"V"~ !"',.',, ~,

time'we might point out tha,t the Government does not, in general, pay for thefacltitdes. .(e,g., buildings and equipment) .that the contractor, has assembled,nor the expenses involved in obtaining and -retatning- the .servtees of .a highlysldlled: staff, nor the detriment to the contractor, in losing the .services of thathighly skilled staff during- the time that the contract is being performed onbehalf, of the 'Government;" - -

Furthermore, in. advocating revision of section 2(g) as indicated, we feelthat dnasmnch as the Government does not pay' the cOlltractorfor tdeas con­cedved.prlor to performance .of the contract; by the same token the Governmentshould not, retain title to ideas merely conceived in' the performance of thework. To guard' against the, possibility that the contractor will withhold orconceal useful or good ideas, and not, disclose them to the Government, wepropose 'to .requtre at a later point Jn the, bill that the, contractor disclose tothe Government all conceptions made during the performance of the contractwork so that, an evaluation of those can'be made; and if, the Government desiresto go-forward and reduce them' to practice with Government, funds, -tne ccu­tractor can be sa notified; but in that event; the contractor-shall have a royalty­free, nonexclusdve Hcensev wlth the,.~ight to sublicense others.cshould such con­ceptionsbe reduced to practice by the Government and. later patented.

Section 3 (b) (1) should be amended to read 3$ follower"(1) Require the prompt and full disclosure by the contractor to that. agency

or any tnventlou conceived or made in the course of or under the contract; andin the case of any invention conceived but -not actually reduced to practice inthe course of or under the contract, the contract shall provide that the Govern­ment -shall, 'wtthln '00 days after receipt of the information concerning suchconception,inform the contractor of Jh~ Government's desire to actually reducesuch.Invention to practice with' Government funds;

Providedturther;.That dn the .event. the.Government fails to accomplish actualreduction of such invention to practice within 3 years after receipt of saidreport, or if the Government does not inform the contractor.iof- its intention toactually a-educe the dnventton to practdce.vand in .etther .event; the contractorshalla:etually reduce such invention to practice using his .own funds; thenall right, ,title, .and tnterestdn .and to such invention shall accrue to the benefitof, t~econtr.actor; .and both .tbe G.o:vernment. and the contractor, shall. preserveiJlfOl"ll1atioI;l,rfllating,to,sllch,jl1ventlonsin;secr,eey u[),til .the p.tie .thereto hasbeen.determine,d.'.~":"",, .' '.' ." '.; '. .

.Sectlon ,4(a),(1) should berevtsed.to read asfollows:"(1) The sole purpose of the conrract.itaj.o create; develop, or improve

products, ,pr,~e-sses,.o:r methods which are intended .ror; commercial .use ,OR aroyalt~~~re€l,Qas.isby the gelleral,public; or, required. for public use- py, govern-mental.regulatdons." ,. "., .'. .... '.. ' "",';.,<

Tb,is,.l',eyisioIl, is .suggested In the. belief tllat":Whell.:the United .:states under­takes-research and d~yeioPlllentwork .on pro,ducts, processes. or, methods whichare.intend,ed.fo~·,generall?U1Jolic use, commerclalfy, this, should .be the. stated .andprime objective, so that prospect,i'Y~";co)ltractor.s;,,wi]J'1l:no.~" ~f' :~':qe~~.businessinterests:~01l1dcb~.,j~lfpar~zed,byperforming .the contract work.., ," ",

Section ,,4:(.btj,n,t~~.p,~~ti\(n,onpage 8,of, the.bill ~s intro:9-U(:ed,li~V~.,5,after"positlon", shouJd, be changed to .read ; ",', ". " . .' ,

"The agency, head, sball acquire no.greater rights, than the, nonexclusive .llcensespeclfled.In eectton.Sfn) (2) 'llnl~ss"hedetermlnes, after, the Invention hasbeenIdentdfled, .that the:re are. tn' exlstence.speclal clrcumstances.. based, on relevantevldenca.of. record. which, .est!il:!!ish beyond, a .reasonable: doubt. that tjie .publicInterest would. S\'lffer"as: the .. :r-E>~mlt.of the .contraetorvretainlng the;,prlncipal. orexclusive rights in such invei:ti:.i{)~,'·,';,.'".',: ,'", '",.' :,,-:. ,:"<, ., ,',', -

'I'he, change .ae. suggested .on ,t1;le" basts that, ag-ency heads. should uot be putiII. the .poaltton, of .maktng a determtnattonon .the .basls .of.jspeculatdon. or .thefear ot criticism if their decision is to retain rights greater than a nonexclusive.licf':n~e, p:n !t!el1al~"of; the,.9:0v~~ent, , '

Section 4J&J,sbould,be: reWIttfill.as .ronows: • , ' " ." (e). .4-~'lt.q,any,contraeb.executed .under this act; the -determlnatiori of rtghte

in alJ;Y In:venti?Jl,,madellY the-contractor" in the course'-of or .under the. contractsbD.ll'be ,Ina,d~.by .the :agency b~.at.tlle: time, cr-contracttoe."

+t; is;])elieved that" tile, pos;tp~>nenient:,()f.:determtnatton of: right's.in patentscan serve no useful pU!"pose, and will 'only increase the cost to 't~e'nTlhli(' ofGovernment research and development work. It may well be noted in .thla

.,., ~~... '-! .... ",4<$

,.. w#d~M:: ·Ii.:,'AIWOTT,General Gou'J1,sel andVio~ President, Legal AfjOJiJrs.

connection that the United States mav, at Its, election, acquire and use anyInventtonrfcr governmental purposes, regardless, ofpl:ltent rights and theirownership, at any time, and whether or not such ,patent is ,granJ~d au an In­vention: made In-performance .of .a Government-sponsored-contract (28 U.S.C.1498). . ..'

Section 9, paragraph Tc), should be revised to read us f()lIo;w'S':"( c) The number and general .nature of such Inventdonewlth respect to which

the agency has acquired greater rights thana rQYaltY~free:,licensein:a~co~'dal1cl?

with section 4, and asummary ofthe)il1di~8offact upon which such deter-ruinations ,were made," . '. .

'I'hechange Ie suggested in order to provide the same type.oireview of actionsof agency heads in connection-with. acquisition of rights' greater .. .than u non­excluslve Hcense.vas is required in thecase of acquisition by,th,e ag®cy,ofrights no greater thana royalty-free license. , ". .'" . '

We ..-thank .you for the. opp()rtunity, of. expressing: our opinion ,regarding ..·.pro~posed legislation. - ,

Cordially yours;

NATIONAi'SMALL :BUSiNESS A~SOOIATroN:,WasliingfQn, D.G;; July 20,1965;

Hon.JoHNL. nIOCLE:Ll:,AN, '. '" ...",. ,,:Ohairman, Subcommittee on [>.at(}nt8, Tradem«r,?~, andOopyrights, Oommittee 'on

the Judic{arv, U.f:j. Be-nate, TVashin{ftontD~q.DEAR MR. OHAIRMAN: In r-esponse to your invitation to submit additionalma·

terialbearing on the issues involved .In.connectton.wlth the.patent policy mattersreflected in S.,789, 8 .. 1047,S. 1809 andS.1899, btlla.betrig-considered by y~ur,

oommtttee, we are submitting the .1~ollowing,adcUtiQ:ua~.c()plments .~ll(l,the. en­closed" stuqies;·· .wfth .. the r;.g.1Jesttha,t" they, ,'oe. .Ineorporated Into the. r,~ord ,V:f~'OUl' .proceedings.

REFUTATION O,F, siklTO'R R&ss~LLLoNG;S ARGUMEN,TS

(0J"senat~:r,L6ng has made a great point that much oftlle Government'sllgencies.and programs are already covered b;r·existing legislation and "l'equil'etitle on behalf ofthepuplic,"The faot fhac practically all of this: legislationwas accomplished through the use of the "rider" technique, whereby the legis­Iarton was passed without any sjgnjftcant discussitln of the Issues, without-resortto committee hearings, and In most cases br voice vote wlthourthe presence off\ny substantial number 'of' Senators,' smacks of. subterfuge in .attempting .. toestabltsh public policy without theknowledge, to say nothing of the concurrence,of a major p.ortionof the Senate. .onpracotical1yevery occasion where theSe-nate, has been permitted. to casta meantngfultvote on the issue, the Longamendment has been defeated.. What thelegi'81atIonrelJOrted by this committeeshould-seek tQaccompli,sh~sto 'ttrrive ata faii·;studied, and imparfialt;leter-,ruination of entitlemerit' to",cornmerciaI:rights'tq .Govemment-runned R. '&'D.'inventions as well astheGoYerIllfenr.s~ntitl~~_~nt.t<)' .theTrutts of'priv~telydev~~{}pedinYen.tions..'"," ...' ." . .... '. :"".'""",.",{,b} Senator Long bas attacked some aspeclSof .tntsmatjonat patent,poolingwhich causes unfavorable international market conddtfons for'Ameri~an manu­facturers.. '1'hisis 11, vartation 'of th~, attack on patents: 'because of the' antitrustImpllcatdous of the Ilmdted monopoly conferred bY'Plltents.-"There is a s~mpleanswer to these "horrible examples"-:-enforcement()f the antitrust and 'otherlaws which are intended to prevent these ,nbllses~ Outcl:ngdown private rightsto pt,lte,nts, as we havepreviouslystated tothfscommtttee, will at theniqsto!liYinconvenience the l~rger firms, but for much creattve small business will 'be' 'aru~,tt~roflifeandde,ath. ' .. ,'" ...., .. '

.,.co} ;~ hls .defense of his~tion, Senator Dong colltinuouslymuddles thewater. byequatin~,consu~er·orientedresearch such as ,that,condUc.-t~by.t~e

Department of Agriculttlreflnd by !lID'W With d'efense and otherncmeonsumerMortented research. . The.' statement that "there is ,no ,ri~k,ip: finding'a'marketforthe n,ew, produ~t'is:cel1;~i~, trUef~1" Ilew ill,~~:p~~oI1~comp;1~t~ly?~"e16ped for

the consumei' marset-c-but the exact opposite is true for most inventions withpotential c0minerciar application derived from defense; space or atomic energyresearch., ,ThElc.()sts of .developlng a commercially suitable product from theliare-R. & D. invention are almost invariably great.. 'Senator-Long Is dead wrongwhen he says. ~hl1t the primary interest of contractors in obtaining commercialpatent rights. tsto ,p~rmit them to p-btain "monopoly" profits. . Classical "monop­oJY';priGing .simply ,does not 'exist i:t;lthe current marketplace,for a numberof.reaso:ns, well kn0:wl1. to economists and. most Congressmen. .Of .course, everybusinessman seeks tiimaximtse 'his profits, but the primary reason for business­men-deetrlng to'-aGqu.ire patent rights is to. insure that there is a reasonableprospect-of recovering development costs and keep exclusive rights to manu­facturetlteJ?a~en.teQ,,·it~,:to -meet comnetruon fr0I!1 substitute' products. \Vith­out exctustverignts, the copier, 'who.hasn,ot berne development 'and marketingcostats jll.3:. position, to undE!r,sell thedeveTo'per-a grossly inequitable situation., (it), One Of the themes' Senator' Long keepe barpdng on is new industries which

have grown rich on Govemment-R. & D. starting from scratch in this field. Inssume~,:r;neans gq-fi.lP:3,nies like Aerojet-General and TRW'Go; (Thompson­Ra~.o~Wooldri,~ge),<.'J;,hE!~,arethe ft.xatnPI~sofindustr1escited to which "bil­lions of' dollacs' of tne taxpayers' 'rights have been given away." We do- notbelieve that any significant inventions having commercial value have accruedto any of these corporations. They have" grown rich on their research earnings.We call on Senator Long {as he is sofond of doing to those who do not concurwith his .polnt of vie'w) topolnt to one instance of patent rights acquired bythese c-orporations which have produced tremendoua monopoly profits for thesecorporations.'; If cases exist where such valuable rights have been acquired.wewould also .lfke to know haw much private capital has had to be invested tomarket these inventions. JParentheticall-y-, no one in industry is' serdously sug­gesting that theseR. &'J:). baseducrpcratdons really have any entitlement toR. & D. patents.) But evenIn the tess extreme cases-c-the Iarge corporationswith many, years of expel'1encein 'a field Of technology-we would be interestedtC),hear.,Of l?01l1e of tlle,11~.111,bl~.ex3;mples, wllere .the taxpayer's, rights, have beengtven away; where 'large corporations-have' acquired patents which were thebasis for huge monopoly profits. We believe that since most advanced' technologyis Inter-related, large .cump,ani~s.withlarge patent portfolios as a matter of prac­tical necessity must pool 'orcIoss-license patents, so that the' only competitorslikely to suffer are the eman.uomneruee.. Effective price competition betweenlarge firms who cross-Hcense Or pool patents is obvious in 'the everyday expert­ence or everyone of us--the electrical. appliance Induetrfes, automobiles, elec­tronics, just to name a few . The conspicuous success stories in modern industryare those involving. privately produced inventions ,mostly by small businesswhich have prospered. and grown-the Polaroid, Xerox, and Data-Control typeof industries. We want to see more of these develop Whether the patents aredertved from private or Government. funded research, and we want these patentsmade available to the small creative individual or business rather than in thehands of Government bureaucrate. even if it means that larger bUSinesses willthereby 'also obtain the same rights. . This course is in the 'Public interest.

(e) Assuming wlthout admlttdng that every argument made by Senator LongIs.logically correct,we believe that It Is never-theless tn the public interest in mostcases to give commercial rights, to patentabta.B, & p.inventions to the con­tractor or inventor for the following economic reasons :

1. VIe·know. of no field ~n' which a true, classical monopoly can be obtained illthe current-consumermarket ; true monopoly ,.pricing cannot be practiced. .In thepresent market for the following reaeons :

a ..There are always, avatlable- substitutes which. evectr not as good. as a de­sirable patented. article, will restrict the seller in prtclng-c-aa the price of thepatented article vts-a-vis subetltutes gets out. of Iine, the utility of the substitllte'Iucceeees .In.the mind of the consumer, A good. example is. the Polaroid cameraand Polaroid film.. Most photographers will aJrree that instantaneous processingof film has some highly desirable advantages ; nevertheless;' the. utility of theproduct to.the consumerIs not so great that. Polarotd.prcducts are disproportion­ately.prtced as.compared, With Kodak or other cameras and photographic supplies.This: is the .. common ,situation in the marltetpla,ce-. Monopolistic competltton inconsumer productHues tstne rule rather.~han.theexception. Patents are ()lllyone 'qf, 1l':num,ber0f!Ill()llopoMstic elements .whieh ;en~r,i,Ilto distdnguishtng prod­ucts and maintaining monopolistic competition-other ractors are trademarks,

..

name brands, advertising .clalms, artistic {as opposed 'to functional), variation,packaging', geographic limitation. of, dtstrtbutton. and variations in. quality. • Inmany products where patents exist, patent claims or rights are, the; least dis;tinguishing elements of competition, particularly if the market is dominated by afew: large businesses. " " , "c''.

b. The realities of large-scaleproduction,and:~Qnsumer demand require thatany product where the consumer exercises a choice between competing desirableexpenditures must be-rattonally prlced fn regard, to its utility,' F'or example,we would probably all agree that a device capable of recording televtston.programa:for later reproduction;' similar .to.the audio .tape: recorder" i'svery desirable-andwould eommand a.Iarge marlcet. Assuming thata relatively inexpensive devicewere, developed an~ were patented, whac prtcdng-policy would be adopted hy themanufacturer-j Obviously' the c price' would have' to bear' some.treasonable -rela­tjonto the market. It-would be a.monopoly. price but not in the classical sense.In the light of' our know~edge.of-market 'demand :and, eurrentpriciilg of -tele~

Vision sets and audiotape recorders; 'we' would conjecture-that-a: video recorderwould have to be priced under $500 to sell In-quantityproductlon, and to gen­erete substanrtet I>rofits;' 'I'hls tscertainly not the -claseleal monopoly price;?;~be proposed 'Federal Inventions Administration' would:certainly cost the .

taxpayer-a great deal of money-c-probaoly much more .than returns from corn- .merclally 'utfltsed fnventibIlscouldevet hope tOl'eturn 'in license fees and royal-"ties; 'Coststo"policing'patentrights on-the-part of .the Government involvingcourt, actions' would-be tremendous. 'Returns from-nonexclusiveHcenses, evenassuming a willingness-to pay a fair royalty (not more than '1 percent or.manu­fac~urer'sgross selling .price) would bevery Iow. ,If excmstveItcenses aretooegranted, disposal by public bid would be the only way 'to avoid favoritism and'corruption, in the administration. ,'Most 'of the patents would: probably sun endtip in the hands, of the' original' developer 'wlthonly nomtnal returns: over' costsof' administratton.

3.' The taxaspects of patent exploitation by corporate developers aresuch thatall profits would be subject to corporate tax~of52percent,plus-taxat-ion ofdivi­dends',at individual rates. Much of the profit. from ,Private development- in anyevent accrues tothe'Government-inthe'~orlll"of,ta:x.-es.:Additionally the property,rdghtaIn Patents, in many jllri,,?,dictions;are'al~o.subject to 'property taxes.

4'., In' those' few cases 'where 'an illegal-monopoly, Is-created-the antitrust lawsprovide.. 'adequate remedies. ..Monopolvpraetlces, .Including-urrtalr- .prtclng, maybe reviewed by the FTO,ilnd the, courta.. and .In ;,extreme 'cases: the courts.canorder licensing or-patents or placing-them ill the public domain. '

5;'The labor iIliplicatiOJis'ofthe' course 'proposed by Senator Long ere seae­tltng-c-to the extent that any policy restricts development of commercial applf­cations, new-employment opportunities .ere lost ,;. but 'to the, 'extent 'that 'U;'S.patents 'are placed in' the public domain forei-gncountries are free to-copy (andeven patent in their, own eountrtea) and using the fruits of U.S; skill .and tech­nology to produce and, iinport-tile items Into-the United States to compete with ourOwnsollrces of SUpply,,' and talrE; away the jobs-of American workingmen as well asthe-businesses which': <:::reate them,' U.S. patents give exclusive rights to the'American manufacturer' in the,U.-8.market and allows U.S,'·citize.ns to file forthe .roretgu patents·.'FurthernlOre; undel'the McClellan 'bill, S. 1809, if .apatented R.&,D.'invention, .ts not practiced; the Government can force Iicenslngcr'other dtsposatortne ,patent;', 6."Cblll lllercial rigllts to patentable Inventions developed ,by smanl~usi~ess orindi'Vidualinven~orsshould ,accrue 'to them wheretheyare to be usedascapitalfor new business'orto enhance existing small business.

7. vatua -or wfiat is' "given away" should be carefully-appralsed in the light,of following considerations: _ '. , \a) In the commercial market the royalty value or a patentassigned or licensedto'u manufacturer-Is usnatlyIntbe. neighborhood' of5 percent; seldom as much'as 10 p~rcentof grosa saleabecause dtfe generally reccgnteed that marketmgknew-how and. product development .are the 'most.fmportantfactors-Ineejltngarie:wproq.qct~, .::,.: ". " c"',,·,', ... -.: , ',. "

(b) "I'he-patent holder must guarantee:'thevaliditY,of thevpatent.(0) ,'.The,putent owner"must' agree" not 'to,'coD1P~te or msehls 'know-howfor

competin~applicattons.," , ,,"',R ,A,prime' purpose of ' certain proponents ,'of, ,tb.e':H,tit~e", ~li.eory: ,Ill8.Y', be': to

further' weaken 'amall-vand-medliim-sdse 'creative -industry; recognizing' that' 'the"'~4:"40Q.26'5~pt:~r<":'2'2"'" ,',' '.' :,' - " " ' .. , ',.,',.

strong middle: class is the bulwark of our free enterprlse system.vt'I'hedesirablealternative fn-the -mlnds of-these proponents 'is Iarge-fnduatrtes controlled orowned-by- Government.

COMMENTS ON STATEMENT OF MR. JOHN. M. MALJ:,0X (DEPUTX ASSISTANT SECRETARXOF,' DEFENSE,PROCUREMENT)

'Ve are shocked by .the continued callous disregard of. the .Department. .ofDefense of· the real. .dilemma und ,hardships-raced 'by the .. small. business'. patentholder-underiexisttng law and, procurement, regulations, as shown ,by the com­ments ofMr. John M. Malloy on S.:1047. ,When.we balance the simple inexpen­sive' and effective procedure which would be set UP under S. 1047 for permittingGovernment Infrdngesnent of private' patents where needed. for national security,agalnstfhe.fmposaible situation, now faced. by small businessmen in trying toprotect, their patents and Obtain fair compensation for their use,we are dismayedthat any, Government offlclal- who is aware' of the realities of the two 'iSit.uationscouldreach the conclusio-ns ofl\Ir.Malloy.

Certainly. none of us .is. trying to deny .. the Government .' the. right to produceItems. .urgently needed for .national. defense. .whether patented .or., not. S; .·1047would-not .in any waz permit this -result by. injunction or otherwise. If .thepatented item cannot be fairly .obtained from the patentee or It .. Hcensed.eourceall that is required isa simple finding by the Secretary of Defense thatnationalsecurity requires .infrlngement-e-this power. could even be delegated to con­tracting 'officers if deemed desirable. '.What we seek to nccornpltsh by supporting8.1047, is to .change-current attitudes. and. phtlosophywhleh .now. practicallyrequlre. contracttng . officers' to induce .tnrrtngement of' any and .nll. patenteditems>: We wish: to .see a.ceestabltebment .of R.requil'ement-,where· nationalseeurtty. permits of purchasing patented Items rrom jjcensed sources 01'1 ,if theyare' unfairly priced, of purchasing acceptable substitutes. We··also.·.S~k..to.reestablish a climate where procurement officials wtll fa,drly seek -toobtain ltcenseafor:use of patented .ttema-and.cwhere, appropulate.. pay, fair, royalties fp,r,.,suchuse... At-present- the Iegtslation-whtchpermtta acqutstnon.or... such-rfghtamlgbtJUSt as 'well be repealed. roe.euthe ,m~e~ib,oo(l,;:o~: .any .procurement o1I;icer ,nOWseeking' to, purchase .patent rights.,:i,W,e .. must-retterate that rcr-ceeattvepatentortentedismall business.u'eeetabltshment :~f.:a; :eair~·.basis for; dealing·.with theGovernment Js,:mandl1tory ,if, any .suostantrar-segment of .suoh industryis',tosurviveto serve the.Govemment's.needs.. · ',;,:,.. :

Certainly, Mr. MallpYIIlust: have, had. tongue -tn cheek.when .he .satd, "removalof ;the,' power ..to •. .seeure an Injunetion against '.' Govemmentc-procurement doesnot-deprive the patent owner. or reasonable .compenaatton for. thennlicensed'use of .his patent.vAn.iaction tagalnst the Government. JiBS:,in: .the, .00111'£ .orClaims,and merdtortous-clatms mllybe settled there..Under·l0'"United.S~tesCode' S.. 2386, .tlie mtlltary-departments areautl1.Qirized"to~~tleillfr.ing~entclaims iadlllinistrativelybefore'th~suitin the, ,0Qrtlrt- of,Qla)J;Y,lJS is' brought."

W,e nave.potntedout und haveinumeroua. example~,#~;H?wing th-atfqr. ·.s:m.allbusiness.. {the prtmar-y euffered). a,:suit: in tJ:teO.oUJ;t:Qf.01aimsis.: no' .remedyat al.l because of Ita.coat.und the .delay -Involved...·,.Furth,e1:IJ1-ore"administratiye.settlement. of .claims cannot be made.vunder. GAOr-qlings, tn. the .. common ease.wherei.there is andndemnity provision. in: the_ infring~rts,<contra<;t-and .. theinfringer refuses to settle. All the cards are stacke(l.~gaillst;.thflslllall.patent-holder·.;·.,,,:.:,. .'. ." .. ' ... :,.,,< . . .:':'.,.:' ,,:,.' •... <.'.:'.,. r.. :; .. '

W:e::fu,rther .take Iesue-wttb-Mr. MalloY's ,~t~temeJ1-t~"The:.Department: of,Defense does not encourage cunltcensed 'use,;of,in,vell,tions"as, a matter. ,of:C91.1.rse·. ~ ,**."" This, may be true .as .a,ma\~.,of '~top~d'raWe'l'?JIO~icy,: -b.uttherealities of the. DOD procurement. situatdon are tihat -prccurement 9:ffiCel"s .notonly. consciously use.every means overt or. surreptitious .to .' acqutre. proprietarydesdgns, but to .an.extent aid" abet.oand Induce Involuntary .Inrrtngementon .thepart of eupplters..... ,.,.";,. -~ :.".: . ..... "

'Ve,th,ink.that Mr. Malloyhas,confu~"th.e,issue in regard:t.othe>re:al'ertectot S. 1047 by his studied harping on the injunctive remedy Which. liesin the background-of this-bjll-e-the real purport of what pas been eald-Is that,­from-the jstandpoint of the:D9Dburef,lucrf,lcy". it, is much simpler .to .eontlnuethe passive state of aff-airs giving carte blanche to DOD .offichtls'aJ1-d ~ettinKus

small- businessmen (who -seem .to be; such-a. thorn inthesicie:, of,J:)OD). con~tinue .to try to grapple-with, :this impoaeible .Iegul and al;lmini,stratiY,e,sftuation,rather than have his own people have to make the simple, c1~t~r1p.,inllt~onl in

appropriate' cases. that' national. security requires infringement of a-patent.If our defense administrators" are-incapable of reaching. the simple judgmentthat a hat rack or a radar component do or do-not Jnvolve-nattonal security,we better get- a new-team. The statement that making such determinationswould delay Government procurement. in our view, is sheer nonsense and serves,'the.same ends. '- _

The end of achieving competitive pricing. for patented items having no;nationalsecurity impact is also sheer nonsense in- our, estimation; No producer-of-non­essential items, patented or not,can impose "classicalv.rnonopoly-prlces- on hisproduct. Available reasonably priced substitutes .tend vto-Jceep-prlces of.tallpatented products at a reasonable level. Furthermore, the Government's broadknow-how and coercive powersin the fleld ofnegotlated procurement-are soundand sure means of keeping prices in.Iine. We most earnestly ask .the committeeto examine closely the reasoning of DOD and to reject it by reporting someversion ot 8.,1047 ; power to make determinations shouldbe vested-In the "headof the department or agency concerned" rather than in the Secretary of Defenseto, overcome- the objectionable, feature, of having', procurement 'actions of otherdepartments or agencies reviewable by the Secretary of Defense.

COMMENTS ON STATEMENT OF J. EDWARD wELOH. DEPUTY GE.N~RAL'COUNSJJ;L,GAO~

TheYie~s expressed by Mr'.Welch follow what is; In oua-vtew.va time-honoredtendency.on the part or the Comptroller General, in his .excesetve zeal to protectthe public interest and Interpretthe will of Congress. to be pennywlse and poundfoolish.. The real costs to. the Government in terms of shoddy. goods•. costs ofadmi-nistration, legal. ,expenses.~d loss .. of indenmi'ty rights which, are. partand parcel-of patent infringing procurements are neverIncludedinGa.O calcula­tions. (But it Is fntereetdng to note-that GAO was able to derive. the startlingproposition that by payment of ordinary. bualnees oveeneecm Ita.procurements,the Government somehow is financing contractor's ,priv~te research programs. Isthe Comptroller General so naive that he fails to' appreciate' that all private re­search is ultimately charged off against goods sold, or.does he-believe that privateresearch funds are provided by some genie or philanthropist?)

Mr, .welch .blithely ... 'skips over the' most.dmportanta.question of-publtc-poltcywhich the-Congress is being asked. to. valtdateor-refute In-the legislation whichwill.' be. reported- out ,by this; comrnlttee-c-namely...soanwe •continue .to supportthe private, free enterprise system, through our. patentr laws, particularly .asthey encourage the establtshment; prollreratron, and, success.ofthe.creative smallbusiness; or, shall. we retreat ,furtherinto statesociahem.where everything eitherbelongs to the Government; oriseffectively.controlled by Government; bureanoracvt

The .. very, issuance .or. the, Comptroller General's: opinion-of. OctobecB, .1958;B.:....136916. Interpreting .the Defense.Procurement Act fn.such.a manner. as to'.pro­hihit :1;he then, prevalent procedure: of procuring patented.aa-ticles.by-negotlatdon,served to repeal, for practlcal.punposes, the authorization'cQiIltained>:in,lO,U.-S.O.­,2386 for the, Government to purchase rights in patents. "Agall,'as1n theca-se of, th~,,Depft:l'1ml~nt:',of Defense witness, when Mr. Welch states that thepatenit:hold.ers, rights .aee "preserved to a suostantdal if not complete extent byrights to reasonable compensation pr-eserved iu section 1498 :of tftle 28 UnitedStates Code." he simply is not aware of the inadequacy and unfairness of thesmall bualneasman.havlng to resort to this proceeding. We believe that a fairappraisal_of·totalre~lcoiStsto·theGovernment would show that negotlated pro­curement of patented iteJIls from licensed source-s would -in·the'long.runbe cheaper'.and more'equitable .to all.parttesconcerned, 8.-1047 provides e-mecneutsm toac­complish this purpose and still permit purposeful-Infrtngemenrby thevGovem­merit .where.there ts anattcnal. defense purpose for the procurement .and supplyfrom licensed sources is inadequate for any, reason.

:",c,:__ ;c:,' r . ,:' ',,",:<;.ST.-qDY.PREPARED. FoR NSBA BY DR. B:ARK:E'V:s; :SANDERS

We haveasked Drv BarkevS..Sandersof the Patentsv.'I'rademarks, and Copy-::,i'ig,ht Institute ,of,(}eorge ,:washi~gt()n. pniverJ3ity, washington....;-~.q ...to preparefor us a study of' certaln aspects of patent .pOlicyas they relate tcsmallhusmess,We asked Dr. Sanders to do this for us because.we :w€:~,e.;aware:.o.f:the:.tremendousbackground which he .has acquired in this area in cOlulection with-previousstatistical and analytic studies of the patent system.

The conclusion reached, by Dr. Banders in the enclosed study which were .,ofparticular, Interest to us, .stnce they support and document some of our previousstatements and recommendations to' the Oongress.: are as .follows :

(I) "The 'value. of patents to individual inventors and small. buslness. is verygreat.

(2), A very large proportion (50-60 percent) of patents developed' throughprivate effort and investment is actually used for commercial purposes.

(3)'l'heallegation that-there is widespread suppressdonof paJtents'by corpora­trona has .not:beenverified:bydocumented studies. On the: contrary, it appearsthat unused.patents are 'unused ptimarfly because.of economtc considerations.

, (4)' Patents are more intensely "exploitedsby ·smalLbusinessthan by large.(5) Indlvldualdnventors and: the:·smallbu:siness"sectorcontinue to make a

algniflcant; contrfbutlon-to the. advance of, knowledge.. invention, ··und'patentingof'inventions; .

(6) The qualtty.of patents appltedfor: and issued" aa attested by utilization;is-increasing; .. . ' .' ',. " ".' . ,

(7)' Comparatively few patentAble:inventions'result·from-: Government 'R;"& 'D;contracts. ' '

(8) Inventions have little intrinsic commercial value in the hands of theB'ederaltGovernznent. . .. .' y. , ,

(9) .. The proportdon of. patents developed with,Fe,de~al R.,& D. funda put.rtocomrriereial use te much ~~aller than for those developed With 'private funds.

(10) ,Gompanies.eng~ge{lin, federally financed .]l. ~,1). are usually not thosewith the highest sjdjjs in the-area of developmentsought. . .'. . '.:

(11) ~heGovernmellt should waive all' ttscommeectai rights to patentableIn­ven~iolls. because this wouid'!esult i1;1 ro0:r-ecoIIllllercial, exploitation, oreconomt-cally ,worthwhile'invention~.- , ..'", ...', ", .. ' _'. ... ,." .

'We 'believe that the ~a~~,provided 'bY,Dr.8an'der's study wUI beveluabje to the.committee beeuuseiIt brings t()gether. much .cf the .. available statdstieal .dataregarding:patent exp19i~,t~o,b,by ,b}l~ip,ess~ " , '

EXAMPLES' OF. GOVEBN1I-fE&T;INFlUNGE~iENT'ACTION'S AGAINST' SMALL BUSr±mS'f;

'HENRY 'J.:'CAPPELLO,Oonsultant·· 0f~Pa.teri-t·Policy.

~

N"EISLEIJ, .LABOBATORIESrINO.,"":.:, ;,:' .', -, Decatur, IU.,August25;1965;'

Senator,JoHNL~MoO~EILA+'i, .",,> ·.>:>,-';l,',:·,:,::': .:':',OhairmOJn;, SU1Jcf?mmiltt~e.,. at PatentfJ, T.rademarks, :ana Oopyrights, ,'.. Senate

J~dici{(,rV(Jommitt~e;·S(lnOit8.0 ffit?eBuiliUngj Wash,ington, :D.O.',,'DEAR 'S'ENATOR McCLELLAN t-Heference ismadeto)ieariz:1gs held 'l?Y'yolir:':'sl1'b~committee on ,S.789, B. 1809,S. 1899; and ,8.2326.: .: ..';"', '

Aware of hearings scheduled :by your committee for '<\'ugust17"I had requestedan opportunity of :presenting: .e. etatement .at: a "later" date' inasmuch as it wasphysically Impossible for me:to be availa~~e onthe.I'(th.. In a letter of August 10,your chief. c~erk, 1\11'-' Steve~,.G.. 'llaaser~c graciouslY'.,sU'gg~~te9- that. should .1,so.des-ir~ i,t.W;o:Ul~ 'be' a'~cert3;:b~e to s,~bmit .a,~tat~men~ ~~r,lllc~us~o~, ill, the record.

i Mater1a.i,coiitatiie~'in'.c'ommittee file,S.

~.~ . __~_._. ._ ·_~A_~.''''. ·...·V........V ... ''''''Toward this end, I .liave prepared a written statement which I would like. to

respectfully submtt for consideration 'by your subcommittee ,for inclusion 'as partof the record pertaining to hearings on these btlls. The statement is-submittedinduplicate and I trust that -it is in proper form for consideration.by roursub­committee;

, Respectfully yours,O. .J. ,CAVALLIT.O,. __

Director-of tceeearcn:.

STATEMENT OF ·DR.CHESTER J. CAVALLITO"DIREC'rOR OF"REsEARCH, NEISLER,LABORATORIES, INC;

My name is Cheser J .. CavaIlito; .. 1 am.currently director of. research.i NeislerLaboratories, Inc., Decatur, Ill. Until a few months ago,-our company operatedas an independent concern in the. pharmaceutical. industry. We are now a sub­.sidiary of Union Carbide Corp. Throughout the period of almost 15 y~,ars that.I have been .with the cOlllpany,weh~vebeen, engaged. in creating, and marketing'new drugs. , .,:';', -

My personal qualiflcatlons are eetforth in appendlx A to this statement.'I'he above bills- relate, to the vitally important subject of rights to inventions

made in connection with Government-financed research. I do. not. propose todiscuss the provisions of the bills .. ' Rather, I would like. to present to yousorne

'of the facts relating to research in the field of new drugs, based on-some 25years of experience ui this field. , ';L'hese racts. I.beleive,show beyond questionthat the public interest is .jeopardlzed by any legislation that would (1) impairthe full and complete .Interchange .or information and cooperation betweenacademic and institutional scientists .and industry research personnel' or (2)remove the patent incentive in .connection with the. research and marketing. (Ifany new chemicals having possible drug utility.., But before detailing. these .raets,

.Iet me discuss my general observationsin more detail. .As I understand the situation, it is agreed by all concerned that the results

of Government-financed research should be made available to the public- to themaximumpossible-extent. The only question is how this can best be. accom­plished. Some have ;takell the position: .that where the Government pays forsome part or all of the activity leading to an invention, there is some form ofgtveaway if the contractor (or, indeed, any private enterprise} is given owner­ship of the patent rights. One fallacy of this approach lies in the assumptionthat the contractor (or other private enterprise) acquires some sort of 'presentlyexisting and commercially. valuable right in a new product. At.least in the drugindustry this is not so. 'Ther~ may, indeed, be some patent rights or prospect. of'patent rights in a product that shows 'some promise -of drug application andsome indication that it might survive the long period of development and market­ing before any return on Inveetmeut fs •.made. . But there-Is almost never, ifever, a drug invention made during the course of Government-financed researchthat is carrted to the point of commercial.practicality at Government expense.

This is not due to any inadequacy' of individuals engaged in Government­financed research. My experience-and I believe -the experience of others whohave observed the activity-is that the personnel involved do their best to givethe Government full value for its. money under the conditions they face. Themissing ingredient is .ona-that-the Government never-has supplied in the pastand I. do. not. believe can supply 'in the future..This is .the spirit or enterprise.Unless there is a strong incentive to take risks nobody will do so. And withoutthe risk taldng. drugs cannot reach the point cfpractical-appltcatlon. Indeed,the risk taking required in the drug, industry is probably greater than that ofany other substantial industry.

Where Government patent ownership is not involved,. our: patent-system-Is. avital factor in attracting risk effort.Inthe development.of new drugs.tand therebyimproving our health.', It also makes possible thepublication of research findingsand the interchange of scientific knowledge that vastly increases the rate of ourscientific progress. The U.S.pa-te:nt system is particularly strong.. Without it,it is highly unlikely that the .United States 'would. have .developed-the 'world'sstrongest and most 'productive pharmaceutical .industry. Of some 587 newsingle chemical drug entities that became marketed drugs-between 1941 and '1Q63,355 originated in the United 'States. U.oS. flrms accounted: for 321 of these,

'I'hls reccrd, Lam sure, reflects.the fact .that aconeemin the.jj.S. drugIndustryhas a-very 'strong Ineentlve-e-through the patent system-e-tc make-the.successivertsk.dnvestments-requtred to. bring, a-drug to-the point of .practical. appltcationand usefulness to.mamdnd.v.r r.r.c.; .'. ,-",,",

To the extent the patent system does not apply as to a particular drug;,thisincentive is lost. Where the consequence of Governlllent-finan,ced-r~sea-rch is acurtailment of available patent rights, the effect of the patent system as a etimulusto these risk investments is reduced, or even lost entirely. The spirit of enter­prise is no longer fully effective as to such drugs. 'I'heir.potential may never berealized because of lack of Incentdve to perfect and market them.

The patent system can be rendered.fneffectdve as to a drug, by Government­owned patent rights that are simply thrown open for USe'by anyone. It can. also~e _~en~ered ~neffectiveby premature publication disclsoureiof the chemicals,which curtails a vail-able patent 'rights.. 'I'he history of drug developments supports',.:l'COnClllsionthat it is necessary:-:­as a practical matter-to have the strongest possible patent rights for new drugs.Any· Government 'activity' that .curtails such rights-may result -In potentiallyimportant drugs remalning unexplcred and never carried to the point of practicalutilization for the benefit of 'mankind. The. policy of'. the Government '~s toGovernment-financed research activity, may curtail possible patent rights byimpinging upon the new drug developnient 'activities ora pharmaceutical concernat anyone of many' points in the' long road-from an idea to a perfected, marketed,drug. In ~ssential1Yall practical cases, the 'extent of the 'Government investmentin the particular product .is-small-c-eapecially -In relation to the inyentment re­quired of the pharmaceutical company in further research and marketing ofthedrug. To sho~v why this iSBO Ldevote the next portion of this 'statement to ageneral description of the steps required to carry a drug to the point'nf practicalbenefltfo manklnd, with emphasis on the riskdecisions that must be made'andon-the occasions where Government-flnanced research activities may ,be involved.

The elements .of u-lsk, the decisions that must be made, and the particularcapa.bility of, a business enterprise operating under incentives to make the' deci­sions and thereby take the risl~s,isbestbrought cut bytracingthehistory ofadrug-to the point at which it is available to, the: public. In-so doing, I shallbring out both the work and contribution of the-employed 'personnel or the busi­ness concern and the WOrkand contribution of academic'personnel who frequentlyplay an important role in the overall sequence orevents. 'within the .limif.siofthis statement it}s not-possible to do more. than sta.te in general. terms 'thev~lrious·procedures and-steps in mak:ing. a drug .' 'available for practicaI',use inmedical practice;' But the sequence set ,forth is:present in nearly'ev~ry'case,

including -partfcularly the steps rrom idea. to' Invention to commercial. product.It should be-added that it takes lllore than anIdea to-make an invention; it takesmore-than an invention to make a produ~t;,all(l it takes more than utproductto.lll?-~e a, drug commercially available where-It can be used.by mankind.

MAKING,' TIlE' INVENTION

'I'he. first 'step in the-long road.to-a new drug of use.to mankind is the dnven­non. For, atnew syntheticrdrug (tha!t is, new' chemical compound useful-as adrug) ,'the work 'begins with .the idea or concept of the new.cllemicalstructureor structures, foHQIW'ed 1J)y 'devising away of making them: ,I!~ora :nm~drug

derived rrom u natural "source, .thework begins with .the-ddea-or-concept thatsome natural-plant oruntmal-materdalmay contatn a material, useful as -a- drug,followed h:vdevising. away of testing, isolating, determining the-structure andpossibly synthesizing the active sub-stance or, 'substances. Under today's condi­tions, these steps are becoming increasingly more difficult and require 'muchil~ore .vis~'on' and ingeniiitY, -than .may appear-s-for- the less difficult and' morereadily appa'rent drugIeadshave beenpursued 'by othersIn the past.

In-the cnsect a chemlstIn a pharmaceutical company 'laboratory; he Isusuallytlsing'lli~ .scientlflc knowledge and e:x:·perlence. Intultfvely ccneeivlng or' visual­Izdng-new chemicals with a .hoped-for, specific;. biologieal'pro;pe-rty orf 'potential'vatue.fnmedtetne. Having so visualized 'fhecheniicalYwatch may oe 'a newsynthetic chemical. 'cornPoundor some derivative' of' natur-al plant or' animal

.matei-lal jvhe then proceeds to devlseways.to.make it;'·... , ' .'In 'the-case o\fan' 'academicecientlst.. possible new-drugs ,('Whethe'l' new syn­

thetlc chemlcal compounds or derivatives of natural plant or animal materials)

;-',1,.0;.1.

are conceived .predomtuantly In.jthe fnterest or .advancing, scleattnc knowledgeor' a, part of a teaching .progfam. _ The. academtc-sctentist mayor' may not bein terested: in the: potential.biolcgtcal proper ties: of-the substance. Many .academicchemists, for .example, are. to.ta',lly·uninteresJted dn,such ..properttes.. .An aeademlcchemist. intJhe·.c'hemistry.·department,.of .nrcollege 'of, .pharmacy, :l;towever, isusna,Ny interested Inbiologlcal, oropertles..• Inthe.case .or an academieblcloglst,such properties are of major- interest. , " ..;' "

But whether .the. interest is only one or; iChemistry;or, .Is. also. a .matter ofpossi!JJ[e,ibiological,pr'operti-es, bhe.rproduct renvisioned -must. 'be. made.. -In tthecase of: somepossible .drugs, such 'as those in the-sulfa-drug. group, this may notpresent great .difficu'ltles, Tn ohe case of other drugs, such a's- some steroids andantdbiotdcs.t.it maybe-exceeddngly -difficult· to make -the .peodueu., In many fn­stances, an•academic, scientist usat .this point -compelted.zo vobtain-the-help .ofothers; Frequently such. help Is' obtained.without- .coet from a-pharmaceuticalconcern having,e-xpe:neneed"ipersonnel and facilities .ror-. conducting tumreualchemical processes.

·Mtel','the product 'has:been .roade, :it Isetdll neeesarv 'to demonstrate 'biologicalactivity before. there is-a-drug invention. :This procedure is usually carried 'outquote .differently In the raboratortes -or .a .pharmaeeutlcal (concern than 'In-thecase of 'R product ortgfnatlng-In the work of an 'academic scientist; 'In the Iabora­tory Of .a pharmaceutical 'c6inpany;,'othe chemicala.havfng potential drug -activityaretdistrihuted to' scientific" specialists such as' ,physiologists,pharmacologists,'biochemists" 'endocrinologi'Sts,microbiologists,· irnanunologi'sts,' or others .havingthe-skills-and 'tacilttdes to: determine the presence, of blologlcal 'aetivity.· 'I'hesescientists conduct -tests.dn.tthe laboratory' on-experlmentaf-nnirnals or: livingsystems using "test .methoda in whick the performance of known drugs is recog­nized. They .also look ',for any novel' or unusuad-response that might suggest .anew '01' unpredlcted. bioioglcal effect andoposstble. appltcation 'of:the chemical.An important part·of thework of these -sclentists ts devrslng .newteetlng pi-oced­urea capaole.of. detectdng.bictogtcal ecnvttics notprevlously subject .to test or-ofimproved' responsiveness and,reliability:.· as ..,to biologfcal. acttvtttes . covered bypreviously' avatlable tests.

In the case of an academic scientist, biological testing is' necessary to makeanew drug invention just as in the case of .the. company. sclentist.. However,tn.manrtnstances nn. academic chemist Is not Interested, or only mildly, interest­ed, dn biological properties; In such instance he. will' cooperate with a: pharma­ceutical .concern .• interested, in' testing, .the: products .he «has -unadej. but will" do

-ncthlng .more .to', bring .auch testing, about. Where: .. the' academic" scientist isdecidedly interested in btologfcal .properties', he may. have .facflttles available, tomake 'such' tests, in which event, they are, Iilcely to .be 'carried. out. More rre­quently.chowever.rlie either-has 'no facilities' foi'·:this.·.pUl'pose or he .needs moreelaborate facilities than are available' at-thednstttution.c In this instance .theacademic scientist must again turn to the laboratories or a pharmaceutical con­cern.

At, this stage-c-rnaldng the Invention-c-Gcvernment policy has a great influenceon the extent productsofpossiblebiological.activity are tested by pharmaceuticalconcerns: UsuallY,the academie.scientistwllo.yisualizes and 'makes the chemicalcompound (or-other product) is working on ,some Govemment-flnanced research.This may be the very research -that- le?- to' the making .of the compound or' otherprodu~t. Under present provlalonsInmany research contracts, theGovernm~ntis believed to have full patent rights' to such products,regardless ofthe.contribu­tion of a ph~rmaceutical"concern In-actually testing. This has forced pharma­ceutical' concerns ill~ost.instances to refuse to conduct such teats-c--fcr the' onlyvalue of such tests to the concern is in leading to a drug which can be marketedunder patent protecttonthat will protect-the necessary investment. It-Is essen­tial;~herefore, to'. have some w~y toprovicie reasonable patent rights to, the'pharmaceutical concern if the-potentialvalue of ,the products made by theaca­demlc scientists is to berealized in terms. of~.rllgs'available for use.

It should be noted that in this instance there isno question ofgivirig some­thing, away to a Government contractor who already receives compensation torservices: .. The pharmaceutical concern-receives no compensation. from. the Gov­ernment in any event-. 111 .the pp.st,. the concerllshave entered into patent agree­mellts under which the concern obtains some exclusive rtghts sufficient to justifythe initial biological.testing· an~ 'furiller drug development andmarketing.ex~pense. If academic sctenttsts (,O,~,~heir,illstitutions)'YOr~in~unde:r'G(}ver~:une:nt'

"'~

contracts are permitted to retain sufficient rights to enable themto grant someexclusive rights to pharmaceutical concerns, this practice can continue; Other­wise, there is every indication that it will soon come toa complete halt.

I understand-from discussions with lawyers that a pharmaceutical inventionis regarded as "conceived' when the chemical-is visualized and its probable ac­tivity tdenttfled. 1 also understand, however, that in some-instances the "con­ception" is not complete until activity is demonetrated-c-but, that under thesecircumstances the conception may not be that of the; person making' the biologicaltests, but rather may 'be -consldered to be that-of- the person who visualized- theproduct audits probable activity that is later demonstrated: to exist. Since aninvention, is regarded as -r'made" under a Government contract when "conceived"during the.performance of' the' contract'·,it is my understanding that where anacademic scientist, vlsualtzes and makes a 'product, while' under such, contract,the invention is likely to be the property of .the Government even if a pharina­ceuttcal concern.fnvesta rar. more than the Government in biological tests .andother actlvfttes.

If the hiologicaltesting 'of one or more products shows' 'some promdse of use­ful biological propertles.rlt.Is necessary to undertalcevery substantial additionalresearch before a product that may 'be even tested on humans is obtained.This activity entails some, verydmpoetant.and risky:decisiooDs-. The ftrst-deci­sion is that ·ofidentifying:the.family of chemicals that should, be. made .andtested to he sure that: the vchemical hav-ing. the greatest .desirable activityand .the least' undesira!ble acti-vity is, found: ,This is not. a simple, .task.. ,.End­less, variations in chemical structure, are usually, possible.' ".A skilled "scientistmay', be able to identify the-structural ,,' components 'of, the, chemical that, con­trjbute to the' activity and "suggest the. chemical" variations that, can mostproductively be explored. More. typicallY,it is necessary for the chemist and

.che. blologlcal. -aclentdst to work' in close liaison in preliminary' tests directedto .Identlflcation .of the .btologfcal ieffects .resultmg rrom v-ariation of, parts ofthe molecule; In any case; an extremely difficult decision, must be-madedndetermining just what products should, be prepared and subjected .to biologicaltests.

This declslonal. process is' part-of the new. drug development procedures thata pharmaceutical concern is designed to follow; It is particularly suitable fora business concern spurred on by.nhe 'prospect, of an important new; drug: thatcan he marketed, under patent rights. If -tbe testing of related-prodttcte stopsshort .. of testing, the 'optimum .. product; :the: .reaultant. drug. .wtll. not. be .thebestpossible. But if the testlngigoes beyond. the point of diminishing returns,investment is needlessly Jncreased und availability of the, drug to the publtcfaneedlessly delayed. Decisions. of this sort are beet-jnade.dn othe environmentof a competitive enterprise. where wise deetsionmalrlng results in. profit-sand,unwise decisionmaking may be economically.fatal.

MAKING THE PRODUCT

The first step in making a product from the invention is to select the com­pound from among those tested which seems to jus,illy further- development.Among factors influencing a selection at this point are : chemical. consddera­tions--such as difficulty .and cost of synthesis, on a larger scale, stability, phys­ical form of the chemical, snectncattons.etc.: biologicalconsiderations~uch,as

spectrum of biologicalactivities, absorptlon.iantictpated difficulties from toxic­ity or metabolic disposition; pharIllaceutical.consideratons-,-Slich as formn­Iation problems, that. might, arise in .. converting the raw generic substance. fromthe chemist's 'bottle to a stable, reproducible, functional-pharmaceucical dosageform. It readily. can he seen that thepot-ential sources. of difficulty are. numerousand multidisciplinary.: If a poor .seleetton is made, this will be an expensive

.error In.fudgment because.all 'of, the work -would.need.co be .repeated ff anothercompoundlater had to be chosen.. ,

.After a n8!W chemical Is ctentatlvely selected for further evaluation, it isput .through the paces of addltfonal eafety testing in animals and elucidation -ofa .more', complete: biological. profile.: ... This,. .If. a new: compound. were turned .upas warranting Interestbecause of Its- a:bility to, lower blood pressure in animals,prior to its first evaluation in man it ,WOUld be necessary to determine-whatother .things the chemical,might .do in a .wtde variety.of. biological test systemsand: to conduct. additional ptelh:p.illary safety .and .toxicity tests.. Art' this. point,one is stfll. a long, way from knowing whether his new chemical is a drug.

If the acute andmal. tests' show, now' limiting:.·undesirable; mantrestattous, sub-.acute toxicity -teeta.marumals' 'areconducted"for\about,3months; If ·the .eom..pound passes, 'ttna.saretetest, -then.one .carr. consider, very .careful.Lprellmtnary,"dose-range'"explorations in a Hmtted.number.of human.volunteers.

The:' decis-ion, to conduct. .enougb- Iaboratorv. tests, .to. prepare, a compound .forpreliminary' evaluation in .man'involves': the' aseumptton: of, considerable, decision..making:rjsk In commitment of·'resources; . B'urthermore, the decision as to howmuch 'animal .WOrk·10' conduct tprior 'to: preliminary evaluation 'in .mau is. aweigllt~ ..r~~o~Sibility,'for·-the'r,esearch and,ge~eral. pharmaceutical'" manage-ment. "': -."', .,'.'.' . """,,:;:,:

"Additionally" the .B'ood: and .Drug• Administration requires. that an investiga­tional new drug applicatiou'·befiled,with.them'priot'to the .Inetltutlon of anyevaluation-of -an-expertmental: d;rug:-in' man.' ';The"basrc 'l'"espon-sibility','anddhe ;risks "Inherent to .• this', etep neverthetesarest; as.they,: should•.squarely. upon .thepharmaceutical company, or:submitter of such a new drug.

'I'he flrst-and preliminary. evaluation: inman, involves 'studies .which often. donob tell us whether. the new chemtcalJs: active Indnfluenclng the erseaee.rorwhich Itts of possible fnterest. 'Rather, .theearly investigations are designedto guide subsequent studles.rrom the view of how much of the potential new drug,substance can be safely 'administered to man without .tnducingcltmttingv unde­sirable side veffeots. These, preliminary tests .generallv are referred, to ashuman.t'dose-range't.studtes.. ,'l"hese·arecQnducted In.human.volunteers and by atleast two independent, clinical investigator groups. If the new chemical showsundesirable feature-sat: this-stage,' It.ds .dropped .fr-om.ifurther consideration.As one can see, an appreciable investment has already been made in comingto this pctnt of no- further pursuit-. If, on the other hand, the' c?mpound does notshow undesirable characteristlcts, Ityet remains' to be demonstrated that it iseffectlve fcr the disease condition to be treated. Many factors- now enter intothe design of steps beyond this point;

If-a drug potentially will be ueed as therapy for' a chronic disease, it will' bea(lmi:nistered'for. prolongeli .. periods of time•. In these instances one must

, begtji-even more' extensfve.texpenslve, and vtime-consuming, long-range animaltoxicitystudies to determine the safe dose range of the experimental-drug priorto:-its 'administration for a significant period of time to humans with.the disease.It 'is 'self-evident that --a, drug' forctreatment or .an, acute-conditionrauehoaspneumonia, which would .requtre administration of the drug for a Itmited-pertcdor time.rposes a differeIit.kind of: safety.problem than one' for treating diabetes,

.ror example, which requtras a day in and day out medication for the remainderof the patient's life. The decision to proceed to long-range-toxicity studies in­volve's elgnfflcant calculated risk in the ·investment:·of :resources. The decisionto . pursue' .cltnlcal ttesting" beyond- the: initial .dose range "etudtes -commlta '.thecompany to possible expenditure of very . sizable .sums 'of money 'over. severalyears'.tj.m~.: Thec()m'p~ny.e:wendirurel'ilf,0r=clini?a1. studies involve not JU\8tinternal.' costs, .such ,at;' maintenance :0£' .a medical. department, preparation ofclinical supplies, etc;,butfinanci,alsupp()rt .for external studlea by clinical in~.

vestigators.These 'exterJ?-,al, cUnical"costs:~'indud~ grantsurmorts to thein~,stitutions.where~ studies are 'to be. conliucte:d and. 'reimbursements for .,the largenumbers' of __'o~teIr expensive': Clini,cal.labOrato.ry. tests used to mOIli-torthe';effects' of}hedrllg J)n'j;he'.yolunteer iJ:atient. Investigators of high caliber'sought to condu.ct,clinfcalstp.dies of this kind also may be carrying on other­l'eS,earehpI"Ogr3:ms,fo~ whichsome fillaucial support may have come'grom.phil­a'nthr0p-ic','sources,()r from jocalvgtate, 6r'Federa~' agencies. Tota'r isolationor ,s-egregatj-O'llof every lls'pe~tof,,:verYP'rojectsby an investigator on the: basisof',source 'o~ fUndS' is vi.~tuallY iiripo's~bll~; It. would 'cut omrrom the. industry"the servi'c'eS' ()f'many .leadfng cllntcal" in\.'"esil,gators:i:f the proprietary positionfn the .company's drug were to be-usurped-by the Governmentwhenev.er.·any partof-the ,inve.sti~ator'~'?rinStituti?n~s:suPport',of. a drugvstudywere 'associatedwith'·red~raifunds.: " .,. : .. ...- '. .' .. ' . . -.. " ~,'"

Here Jh~ poltey r~spestir1g-' Gcvemment-flnanced .research: by <academic scien­tists a~ain' impinges 'on'. thetdevelopmentr'and marketingof",new,drugs;~'The'P;harIn~ce.u:tic'al.<:oncel'lJ,must-be a?l~ ,to'u~e ,the .recntueeof, the acadeinlc .clinical "investigator.. It cannot do so, if 'the consequence of using; 'these Is, to .lose-therp~tent rights,that 'ar~'es~ntial to, markettngof the' proposed new'drug. .. W'hileI ·.·Cio .··not.' believe, tnat-c-astde' from: exceptionalcases~a,n:Y·'present"practice're..­l~tt~,~. t~_G()ver!l.m,~nt ..fiJ;lfiIlC:~, ;r~se~rch contracts: :f:h,~ea~enS:'.'the- pharmaceutical

concern.Jnntblst respecta. anYJ!"continua,ti'on ",of the.unecent: trend.rtowerd .ever-:increased Government Claim ,of-,rights ,maY, -wen.no $O.:!; If, .thls-occurs. the con­sequences -wdll.be -dtsastroue.tonew. drug -developrueue- and-marketing.

After collecting considerable'amounts. .o:f-:data:£rmn,animals;and' n-om, humanclinical work with anew experimentah-drug, one.usuaus-.nes anraccumulationofencouragingand,discouragillg, Information.which .recuireeevaluation;" : There';is' no such thing as an Idealvdrug» No:,:drug-is·:without\s,ome.shortcomings:-or.limitations. Yeu-trwe .are .to be.oracuoal and make .etep-by-stepedvaucesdumedical :therapy. -we.unust: make-reeustic .comnrcnrtses-wttrr.taie-fdeat and.fn.light of the best medical judgment determine whether t~e evaluated data froma new .drug- shows sufficient advantages to outweigh its: Itmltuttcus. .and justifyits useIntreatment of a, disease. ;The, companymanagement once .agadn mustmake, a htgh-rtsk dectsion. "Do the- overall. characteristics of-the investigationaldrug merit its market Introductlon as aproducta- Errore In-judgment-escalate .in costliness as a drug development program-moves closer to the product stage.A new drug appllcatfonflled with the F'ood-and Drug Admtntstratdon may requireseveral years to clear.' During this time, .the.company. has considerable moneyspent wlitch-earns no income and-fn.practlcec.usuatly continues to spend' moneyon additional studles..' Finally, that rare day may dawn for va pharmaceuticalcompany onwlrlch Jt .recedves approval of Its-newdrug upplicatlon. To reachthis point" an average of 5,000 compounds were prepared" studied, and discardedby the; tudustryberore-the :one became an-acceptable; 'marketable product;

.. 'CONDUCTING A .: PHARMACEUTICAL "BUSINESS

Having anew product fe an -exciting situation :for any cOmpany: . This isparticularly true tn the pharmaceutical industry.. Havingn product, however,does. not guarantee -that it: will, .rorm the; basis orn prontabie business. , Thecompany may he, compelled to make a majoJ.'investlllen~,.illanewfactory,i+t~

stallaticn to manufacture ,tile, d~g",~mbst~llce. Pharmaceutical, productionfacilities may need to, be, deslgned-pr added, ror ,m,anufact!ure.,or- the ,pro(ltict·Quality control," packaging", distribution, ,and:,lllarketi,ng"efforts, .are -requtred.'These costs "are particularly high during.,the early pertods cof: new productintroduction. To, these' costs and problems one must add ': the, ever-present posst­bility" the drug, just won't, be, a market. .succesafor any .of several treasons.Furthermore, in a highly competitive jndustry, who knows how soon and;:fl-O,mwhat, direction a' new product wtf l.. appear, .whtch overnight .' wQl.makey()'ursobsolete?

STEPS I~. THE DEVELOPMENT AND.- MARI{ETING OF A!'rEW,D.RUG ·FROM,THENOij.MALLIMIT'OF GOVERNMENT.~FINANCED ACTIVITy' IN MAKIN.G; ,QOMPOUND ,WITR··SOMEACTIVITY, 'TOFIHST' .,MONETARYRETURN

'I'hereare, of course.tendjessvartattoos In the eequeneeofstepa Ieadlng.to amarketable new drug. General indicati0llls. of wbattakes 'place, Illay"nevl?'rtl1e~less be, helpful .to your .cC)lnIIJ,ittee .In yi,sualizing whiLt •. occurs..... I have .accccd­ingly. attachedhereto an outline" of ;steps. In .the development; 'andlllurke.ting· ofa new, drug. . 'I'he outlfne. extendeontv fr()IU, th,e P9int. at .which",a cllemical,. isfound to ha,ve an inte~esting biol()gicalactivItyt.o the. tlme ()If:fi~'stsale ·ofjJhe.drug. that ultamately results.J!,he.t()tal,elapseq :tifnecoll1l1•. ranee from 4,to 8years.. ,.TlI~ '.' total. Inveetment-. could ran to, the .•. rllpgepf. from. about. ... $2.:1:0.$12n;l;ill.liOll.". These' are "not .. absolute -blmfts, ,but do. rep:t"e~~t. .the ranges .. :u,i;l';uaJlyencountered today. .AlJlo'ftiliisjnvestment must~be,made on.a juether HskbasdaInthe lfglrt of the chance.that a competitor will market an, equal; ,or bettervdrug.during -thls .developmental-, periodpr:..sb,o:rily',there[ifter,:~he.. ph,arm'ace,urticalconcern, must have, patent rights to.justify 'tllis.invesrt;me:nt.,,· ',...:.", ...• ;..:.,;'

miecovemmenc. investment. ina: potential-new. drllg ·rarelyextends beyon<1,the point where it has been-made by an academic scientist and.some biclcgtcalaettvbtyshown .to exist. (a .demonetratdon rnatusuaus.oocurs tn tlle.laborat,(>riesor..a pharmaceutical. concem- to whom, the ·cp:mpouniLp,us,be:en., :given: ,f(}r th,ispurpose) r: 'If.the: metter.Ja dropped' .at:this point,:the:re, is'" no, drug:sultable. for ~

marketing. If-the.matter is: pu;rsue,d"lls .. Rtuetrated In the .. ,outline,. -rnilli,oIl,s:pfdollars must-be .-jnv.est~,before there is any .return. Such :inve~1;m,ent,cltllnotbe justified -witmont'. patent "rigJJ.:ts.; .. 'J)h~. tntttat•Government .inv-espnent.;in, t,he'making ofrthe.compounde--perhaps. only $lO.OOO-is'faroutweighe:d:' JJy. th.e:·· tn­vestment 'of the pharmaceutical concern. It follows that Government pOlicy

A,PPENDIXA

OAVALLITO

should be.based-on leavingtOi, the: 'contractor in such instance sufficient patentrights,to;enable,,tt':to,grant'·.rights to the pharmaceutical concern adequate tosupport investment. necessary, tobnng :tp-I?!p~()<Ip.C:t;W, th~pp~?,t :or,~tg~fl.riq~ .tothe benefit of mankind. "i\;',",- ,:",,' , 's:

One ,product havfng some phaJ:IUaceutical, activity'as,~e~te:d"iP- 'V~olo.g·ic~llaboratory. (For every suchc()mpowi:d,PllaTmac~l1tical,concerIlg.,mJlke:~ndtestmanw compounds., Whe.J.>e an' academic SiGientist' lias made:1Jh~ comp,ound,- hemay, fortuitously hit upon one with some ,activi~y;',If the 'acad~mic,sciel1tJsthas been, -supported 'by .the Government to any extent, -the support:' does "notnprDla11y:extend beyon~ ,the, point of' having made such a,compound~,)

Synthesis of, 25.:..100 related ,compounds' ,for te,Sit'a,nd determination of optimum'chemical; $50,000 to $200,000 invested by, oomJ?R.l1Y; ,

Biological ,', screening 'of '25-100, compounds ;' $15;000' to $50,000 invested bycompany;","" ", ,,' ,,",' " ". " , ,",' " " ," , ': d"'>, ' , ,

Full biological laboratory 'profile of compound-selected as optimum; ~50,00()

Investment, ,'" ,,', ,', ,,', "",,' , " , " .Pre1i:rllinary,3-month, animal toxiCity tests; $10,O~Oinvestmi:,mt~Metabolism. ,and biochemistry sttiCl'ies ;$50,000 investment; ... .­Pharmacy, research and' development;$50"OOO~~OO,000IDves:traffiljt.Human dose-range ,~tudies ,;'$15,000inyestin.ent;' '. . . 'Long~tenn animal toxicity, testa;';$60,OOOin;v~tment.Pre-new-drug application human, .evaluation ." of,drllg';· $2f),'00(};-.$! million

investment,.' . " :. .'" ....' 'Processing of new-drug uppllcatton ;$100,000 Investment.Introductory .supplies, production' faciliiJies, mar'keting ; .$5'1Il~1~ion fnvestment.. ,

First sale anamonetarv return.If'drug'lssuccessfuI, .and' is 'noti displaced too-soon by; an even .'better, drug,'

the. monetary-return .will be .adequate to .justify. the investment made' on the'drug.together roth Investmentsmade 'on unsiIlcce-ssfuldrugs... .

Total .. elaps~d time from' first compound with .. some llctivtty,to first monetaryreturn: 4 to 8 years. . .'. '. ' .... . .. -

Total investme,nt from fi,rs!t 'compound (arid normallimit'of:any actuea oov,emment' financed' activity) tonrst monetar'y-returnrabout ,$2.million to about$12 million.'

STAT'EMENT OF' Q'UALIriCATIONS, ,D:&::CI:LE,El'l;E'~

I recetvedu bachelor of. science, degree in clremtstry freml. Rutgers Universitrin 1936. My doctor of philosophy degree .was granted by Ohio State Dntversrtyin 19,40. My field at this timewas:organic and physiological chemistry. In con­nectionwith.work Ieadtng to the Ph. D. d~g;ree, I also' served as teaching assistantIn ,the. physiologiclll,cheI:l1ist~.yllnd.pha:rn13,COlogy labor,atories,inttte: llied.i,c~l,school atOhio'StilteUniversity., " , ,', ,', " ,,' "",,', , "

Following receipt, of my Ph. D. degree, I worked forl.f) years., at ',(;toodyearTire & Rubber Co. ,lHY,'Y0rk there dealt With the techniques for preserving foodusing ,synthetic polY,mer,fiJm::;such' as Plioftlm as protective agents. : After thisI spent some,9 years ,atSteI~l'ing~'Vintp.ropResearch Institute, engaged in researc;hwork in .the field ofpbarmaceuttcals.... Since January 1951,1, have been directorof, rese,arcll"of .Neisler Laboratories, Inc. ,.,(formerly Irwin, Neisler '.& Co:)", ofDecatur" Hl.j whlch this :v.earbecame a subsldtary ofUnion QarbideQorp:

I have served. as, s€!er~tary,andas, chairman of .the Division of MedicinalChemistry 'of the American Chemical Society and am a-member of the' ed,itorialboard of, the Journal or' Medlclnal Chemistry. I have~ 'made presentations, andhave Iectured tn the filed: of' organic" chemlatry, drug mechanisms, ,andehemicalpharmacclogv nt meetings and at ,universities, .both here and abroad." ,I. haveserved as "lecturer in the' Department, of Pharmacology, at' the ',UniveI'sity ,ofIllinois College of Medicine, At' present,I am serving on the Chemical 4-dvisoryBoard, for, Walter ,Reed Army .Inatttute ,of, Research., "I pave: authoredupproxl­mately 70 solentiflc publlcations, and'have received over 30 U~S;,paten:ts.

I am a. member of Phi Beta Kappa and 'Sigma Xi honorarvrraternlties. Inaddition to the American Chemical 'So,ciety,' I ,am ameDlber ortile. Chem~calSociety (London), the' American xssoctetton 'for the AdYaricement' of' 'Science,the New York Academy of Science (fellow}; and the American Society ofMlcroblologv.

'NEW;'JERBEY:PXTENT:LAW ASSOCIATION,',N6'lVark, N.J.,-May 28, 1965.

Re hearings June Land zon 'Qovel'iiilleIitpatent,polic'Y.Hon. JOH;N" L. MCCLELLAN, .. ;'., " .' ','..':O.haiT:man, .: S'Ub(;O'J'J'l-fltitte6 .. pn :Jlatent$,; ,'I'rad;61t)Mks, .. and, .Copyriflhts, Committee

op-the, J1tdicia11l, V.S'. Serj.ate" Wf!s]~i'4gt?n"lJP· .: "'" .' .. ,'DEAR SENAT,OBMoCLELLAN:,.;.The,New Jersey Patent Law Association has

reviewed. the provisions of S. '1809 and S.1899which are to: be considered by, yourcommittee at theheartnga.tobe -heldnextweek. Our association believes thatyour bill, S. 1809, the Federal "Invention::;.Act, is a very .ataxesrnanlfka handltngofthis'extremelyimportantsubject."_,,, '.": . ';",-' .. : :

In the.oplnlon, of our; 3;ssocia.tlon,:. $.,,1809..Is-an .excellent .bill- .whlch providesfull safeguards to the Government arid the public while permitting a degree of,flexibilitytot~eGo,verllmentagency,head .to administer the patent rights provi­sions in Government contracts to best serve the public interest.

We believe our national policy must-be flexible because of the diverse types ofGovernment research. . In.some .casea.where afleld of research has beenwhollyGovernment fliDde<1,.a.Il-clthe eontractor bringa no private background to the con­tract work or where the researchobjective.Is to develop items for use by. the .pub­lic, for example, civil defense orpublic s3,~e,ty equlpmentc.Govemment retention .ortitle to Government-sponsored inventions; may be desirable.. "In. other cases wherethe research IS priinarily' directed toward governmental activities but the Govern­ment wishes to encouraee.. but .not. support, .ruture deve,lopment in, commercialar~as,grantinggreater ~an nOlle-xclusiverights .. to. a contractor may be essentialto encourage later private development.

We believe that to develop commercial uses at private expense of most- Inven-.ttons . requires more than nonexclusive rights ;(01' the .perscn who is to makethe developments. Extr.emely -large sumsof.money:arerequired·in most In­stances to develop a new product to .lts commercial stage, Only if a companycan. .recover. its developmentoaxpensea .... and havecsome chope .for .:au-easonableprofit on the products Which it sells, will it be willing to take the greatrisksinvolved in attempting to;commerctaljy develop a new.product. .'. i

We believe -that :S. 1809 .aecompltshes. the .desired objectives Qf,fully protectingthe Government on inventions developed under Government contract yeLat;tl1esame time, it gives a flexibility whichcwlllipermtt and.fn fact encourage- eon­tractors to develop for cornmercia'l usea Inventlons which may have been madeunder or in connection with a Government contract. .

We have two minor suggestions,.hQ1vever, Whichwe.~h(}uld ltke rto haveconsidered: in ,connection -with:S.. ,1809-;' f3ection2(gf appearing on page 3ce your bill, defines when an inyen~ioll has. been made':', ,We believe that thewords .. "in the course of or under". tlle., contract could be.misinterpreted.to:implythat Inventions made durtng rwcrk .1Jerf9J:med,by .a .. .contractor. not under:thecontract but which may be in a related field shouldbe..constdered as comingwithin the definition when an tnvanttonte made.v ws believe that. this couldbe clarlfled by changing the words "In the course of or under" to "in the per­formance. of work. called for. or, required und~r."1Yitl1(nit.this: clarification,a,contractor might, be Incllnednot to, accept.Oovemment contracts infields inwhich .he .Is eireadv doing,commercial w~r:k:.<,which. fields" ,ofqourse"wouldbe where he would. have his greatest capabilities).', -. : .. '.

Our othersuggestionl"egards,se.ction';l:(a}(2) on ,page7of ;vour bill, It,refers to contracts. for eX:Ploratioll .. intoflelds which directly .concern ,'the. publichealth, welfare, or.• safety, and we belieye iLcould, be. misinterpreted .by,cOll~tracting officials.asapplyiIlg" to almost any :contract'w-hich.tl1e. Governlllelltmight award. .,AID1osta:nything which the (}overnment,gets inyolve,d In doesmonewev oxanotcee directly concern the publich~alth, welfare,or safety.Tl1erefore"we.r,espectfully sllggest'that this .sectton be expanded by settingforth, those jspecfflc types, C!f,contracts 'l,Vhich'.YOU would feel directly con~ern'the. three broad categories re:fe,rredto in "eectron 4(a) (2) -. Thus, .ror. examplein the .field .of public health,)I~ust:raJive.examplesqf.such.contracts would be,those .for deYe-loping means fill' .curfng -and .preventing dleeasee, matters relatedto .santtatton .and samt.afy.f~Icilities,:awL improved ... rood .prodticts for use byllnder!1011r,i§h~d segmenta,of,'O)jr P?PV;~~ ti ~)J\, . '. . .

'f VI

In. closing; onrussociation, wishes to thank you' for your' efforts' in"endeavoringto.develop.a national 'patent, policy which. will: bejab- rand.equitable both to. theGovernment and Government contractors. Also, we.wteh-to. -thank ron»: com­mlttee for.consldermg our. statement on this matter..

-Resp'ectfullyy.ours,JULIUS ,J;: DENZLER" Pres.iden,t.

THE, AS;SOC;IA-rION .0~,1·:HEBAR. OF T~~,:6rrY (iF':N-EW, YORK,, ' , . ,Neu;Xqr}r" J,uiy,16, i9i5~'

r-ion..;;rOHN:L.'"McCLELLAN". ' ,;";, "';':, ..', " ',.;' '" ':" ' .":;'GILairman, ,;fiubcommittee.: O~; f,atflnt8, T1adCtnark.8,; and "Gopyrigh.t8:,,(J01Wn:l,ittee

0'il., the Ju,dic;iary, Se~ateiOfflfJeBUildinu,;Wash;iry/t,On,J).O. - '. -,',DEAR SENATORMcC~E~N'::,The ..Comru.ittee·on';Patents of the Association .of

the'Bar, of" the' City of-New York;; being 'charged to. examine ,.pendtng patentIegfslatton-and authorized to promote.orioppose It-on-behalf .of the.assoclation,has glven conslderatlon; to '. the;.three -bdlls now .pendlng- before -yom",subcommitteeon the subject of Government patentpollcytwdth respect to, Inventions-under eon­tracts relating to research 'and:development, such, bills -bedng 'S'-,789,'.'(Salton­stall); S.1809c(McOlellan), and S. 1899 (Long).

As. a -rcsuit .of such consideration, ,OUr· committee.has-approved .- S; '1809..(Mc­Clellan) and urges .the paasageiof. this bill;' The committee-wishes to-regtsteron reservation, .namelv in feeling that-rthe-coneluding-sentence ,.of,section,4(a)should be clarified .to. avoid .future .Interpretatlons..of this provil'lion:{hY:,:Gov-:­emrnent agenctesj.rwhieh might; ·for'.a1l-,practical··purposes, foreclose-the. apptl­cation of such provision in the prlncipalr areaa where exceptional circumstancesmaya.rlse.

In: 'general'support of the: bill, the: committee recognizes" .that there. are Im­portant' reasons for ;enactment .of .a .law prescribing Governmenn.patent .policyin all fleldaiofrresearch rand development contracts; 'I'he-eommtttee Turtheerecognizes that in support.-cf B. 1809,there are very cogent reasons for .per­mitting a division of 'rights, between.theUnited States and the contractors.vasto inventions arising under-contract operations, and in partdcular for permittingthe title or principal rights (saving always a license in .the Government) to -beacquired by the contractor in a number of appropriate circumstances, in con­traat ' to proposals; as' in one. or. the cther. pending bills Identlfled above, that-would essentdallv vest alleights in the Government, with. relatively little, excep­tton evcu as to a Iicense in.the contractor.

'Some-of-the reasons-for favoring a balanced policy, such -ae understood to beintended' -.in. S. 1809; including provisions. allowing .the .contractoc to acquiregreater rights than a. mere -Itcensewtth.respect to: the contemplated. inventionsunder a:ppropriate circumstances, are predir;ated~onthe:concept,thatthe,.i:ll;centive values of the .patent system, relative 'both. to. .the.Interest .of 'the,Govgrn:menc in getting maximum results .of research, and the interest of .the publicin' getting the: ·benefits:of·. the, .inventions .where .possible" wrllbe Iost .if majoror all rights are' inflexibly acqudred by the qovcmmcne.tn 'every case. Specifically,for exarnnle; and -excludtng situations where-public .Interest.dn .thenature orfield of>' research .. conclusively, demands. .retentton 'of .dominant rights bY,)lleGovernmentras under;subsections:'.(1·h:(2).; (3),: 'and (4) of sectiou::4(a.).;.ofSo'1809,'jt has, been cogently .suggested-thet tn.tne.aoseuce.of ,pate,n,tprQt,estio~ ,oJ,"substantial patent interest for the contractor. . ~ .,,',''>'(~a},,r£here wtfj.be .mtntmal. .tnecnttvc.to ,th:e contractor tojdentify.and;: record

patentable developments,"so-that-the .signdficanc.e,pf,,~u~h::de:yelop.ments Will_;b~

lost toithe"'public.,;''- ;;'.' ';, ';;""" ' ','."'., " -(b')There will be;lit~leor no .tncenuve roranr-one to. cOlU~e~~lize' producta

(in: areas :of;:general',rather,' than, Govemmentafuse) i13in~e,after'the .develcp­ment of the products underthe:,Govel"IlPlent:~contrltct"'lloone"'\V0uld:have,a,I13'protection" (against'] colilpetition~by"oth~sl ~n"his!,P:tYe:stmentr;,for.. such .com-mercialization."(c ,.,: "'--, ,"':.', ",,;,-. ' " . ,':

(0)- 'I'he- smaubusiness" contractor mayfin,d ':tb~t- the- resUIts:·of.hiS :resea~h\and-development under, the .contraet ,a~'fr~,to be~xploite.dbY,lii~Jarg~com-petitor;~tc.y,the'detrl~enL.of-,the·grQwtl,1,:,of"small bustuess, , , -

I'VV

- (d) "I'he-contractorrwlll be discouraged; from; making 'rurtben-developmentswith -respeet to. subject -matter. which has' inteffect.tbecome. dedlcatedr.to'Jfreeavailability' to:' everv.one.

(e) Research and development,' contracts .wllf be;' refused ,'. by 'many qualifiedcontractors, especially those having the most valuable background.orexpertenceand ability, because of reluctance to risk their existing proprietary rights andto lose, in nongovernmental areas, the 'fruits of their long experience.

The position of the committee in support of B. 1809 accords with the positionthe:,cQmmittee, has taken in past-yearsrelative to' similar "proposed legislation,r.e., relative to situations where demands of the national security orJl1egeneralwelfare warrant the Government's acquisition, of greater' rigIitsin 'contractinventions and relative to',th~,d~sira'bilityof peJ:'l})ittiI1ga contractor to ~eceive

the greater rights in essentially all other cases. If-may be noted.tIrrpasstng,that as ea-rly as June 1961,thecommitteerecorded its opposition -to au.earjjerproposal for aB'ederal Inventions Administration, being'of the opinion that suchAdministration would. serve .no. useful purpose and that each Government agencycan- bestadminister its own .patent.affah-a: It is noted that S~ ,1809. does-net pro­pose, anyr-such uew: Inventions Administration;-Turning .to cour.r.reserwatton about.i tbe .ftnal. provision ofseetionA(a) "of

S.1809, t.e., the sentence now appearing .in Jines: 18 to 22 of ''page 7 of' theprinted' bill, it is strongly 'urged that some clardfleatfon-Ie.needed. ;Very .appar­ently, the principal' 'situation 'of "'exceptiorial~circumstanGes"would. be onewherevtheequities greatly .favor: .the-eontraetor, 'as when. such .contractor hasan -unusual' 'amount of special knowledge and experience and a great deal-ofvaluable-know-how, either dn 'research orcommercialoperation, in areas criticallysignificant to the field in which the-further research is desired; Under-euchcircumstances, where, the monetary consideration of the contract cannot-possiblycover the very large-value of, the .contractor's position, Le.i.thevalue which, willbe of extraordinaryadvantage for the sake .oj-the.coutractedresearcb, it wouldseem:" plain that ex.ceptionatcircumstances 'a~'e preaent.. including .equltable .con­slderattons which predominantly .'favor" the acquisttlon ~by 'the' contractou ofgreater, rights tlran.a .mere license. The publle' interest; -in.such, case, .may wellbe' advanced by obtaining the services of this contractor (as most likely to bepr~uctive' of.desired results ).'through the. inducement .ofthe prospective acqulai­troh of greater patent rights.

It is felt, however, that thepresent"vordihgofthis-:conclu'ding.provision,ofsection '4 (a) may' well, foreclose, Its'. applicability 'under: .these "ctrcumatances.Specifically, a Government agency.. might very likely adopt a theoretically war­ranted' conclusion that' the' vpubllo interest" is .only "best .served".. :by .retainfngutie jo all tpatents 'in the.Government as the supposed representative' of .thepubltc.t there-befng nothing'in, the present language of the bill to indicate-thatRtrong. equitable 'consideration~,in favor of,the,'contractor',mightsuffic,e: to-out­weigh 'the presumably "best"! position of the public in being, granted full.a-lghts•.Indeedvthere is nothingin {'(a) -tnat.tndtcatss anv-recognttton of, such equitable(,ollsidera~ions;,,,~h~reas·,theexpress.recttal' of, some limited' situations .Involvlngsuch 'factors' in',section 4 (b), 'could be-coustrued.as excluding any, such, consldera­tiona fi'0Irl,'the scope. ,of'the "exeepti0llal ctrcumstancea't provlslon cin4 {a), It isJ1ote~;.' Infhat ,co,~nection" 'that' this..last 'provision, 'is, 'the-only: .exceptlon '. to', the,other:'pattsof. -seetdon- 4,ta r.;, the benefits, or. section. .4'(b) ,.are mppaeently-cnotapplIcable to-any'"Situation "coming: Within, the.mumbered. subsections of 'section

~,({V¢,belfevefhat.'the'danger','of. th;~ '~:~~~rictive :interpretatlon .'6~;th~.·ftnal'-,~~6~visotn section :4'(ejta ·very·,-,real,' and 'that 'itw-ill· result tn.sertousdtsedvantageto the Govemment ; Le., inabilttyto cbtaln the services of .the bestqualtfled andmQ£t.~prodl1ctive',~ontractors'for.'rese!u.·eh,especially in; areas contemplated' byseetlori 4(3:) . :C1'Y 'an~ (2) ~ ~ince,those·eolltractors will: feel' ltttle-Inducement.jtog.aedfi'Ce: tl1€iii-: ,ha]"d~earned'kiiowledge '-and:, ,experience:, "''By way of'positiverecomm'endiltion, 'it is. 'suggested that the' final sentenee ofsectton e(a) (p. 'I,lines ~~ to 2~,m;, the-printed bill ~ be amended toreadjas follows(£he U:ni~;Ii,(li:ne:i1f'lJeillg,by. ins,ertion'of'.th.e word-ingmar~edforemphasisl) :~': lri e'xMpti6i111l ';cirC11lllstji'nref3" w1Uq,hUff(wg inxl lu de ian1J;' equitable 'considerationsth(llt predominantly favor"the oo1ttriUJtor, tnecontractor.mav eonnro at-the timeof contracting or upon disclosure of the invention, greater rights than the non­exclusive license spectfled in section 3(b), (3) if the- agency head certifies thatsuch action -wll'l advance or best serve- the' public. interest.

ROBERT S. :OUiY:a:AM,(J'!,,!!ir'1rljln,. Oommittee, on 'Pa-tent8.

.It fs -belleved-thaf amendment'along:these.linesis, desirable andnecessary' toclarify what we assume is the basic intent of the proviso; namely, to' permit-anexception where equitableconsiderations:strongly fa VOl"the contractor; .VVith'theadded wording, it will :'be . plain; that:'eqllltable, 'considerations .are co-be-takeninto account,..here.aswell-as dn 'the .Hmtted area, 'of' section 4'(b) .-At the same-tfme, -the-contractdngagencwean: 'feel authoetzed to' grant the exception, if' suchaction wfll fa'uly advance.the rpublfc .tnterest.i ror.examjne, as under-the circum­stances explained above;" while, there, wtll-. be :no; compulsion on the agency toadoptra theoretical 'inter:pretatioll<that'theretentiol1 otessenttanyrun title topatents is .'. practically the. only, action' .that-ean tbedeflned-as .1'besV~"servtngrthepublic interest.

In conclusion, 'our, committeenpprectates- thlsropportuntty .ofrexpresslng itssupport, o<f: the, bill;' on-behalf or. the' 'Association. of .the: Bar' of: the, City, of NewYork, and at the same tinre.strongly recommends claulflcatdon. of the above-notedprovisions in section 4(a); e.g., as by amendment along, the, suggested lines"forthe sake.of basic workability of the general Government patent program, and,indeed, for the' real interest of the: public-in getting the highest productivity andbest res~lts foritgresearchdollars.

llesp~tfully:sl,lblnitte~. ',. j' ',,'.. ".;

~,

.'.:.. ' ... :' , : ".':',' ,','." ....:' .... ,:,: ..: :.'~:s:E:NEW- ¥Oll,~PATE;NT:LAW 4:SSOC~j;ION,

New York, N.Y.,.:Ju'[.y:6, 1965.Re bill.sto establisba, n~tional.patfmt pOli.·~Y... . . . ,,' .•... ,...I:IOn.JoHN. L. MCOLELLAN,Ohai1'man; 'SUbcQmmittee:'O'J'I,'Patent8,Trademarks,. and Oopyrights,:Senate .. Office Building;:Waahington, 1).0.

DURSENA'l'OR .MCCLELLAN:' 'I'hls: .letterds subrnbtted -In-Heu' of an' appearanceand testfmony-on behalfof-the New York Patent-Law Aseoctattou.t-Our associ­attonIs .very, active andIncludes in its membership a majoettv os the lawyers inNew YorkOity, \vestel'n-OollllEX;ticut" and.nor-thern oNew .Jersey who specialize inpatent and trademark matters." A committee of our association has, for a numberof years.rbeen assigned the sole task of reviewing proposed legislation and otherwrltdngsrelatlng to Government-patent policy and.guiding our assoctatdon'e posl­t.lon. with respect to this, matter.

We' flrst. want to thankthis:subcommittee"forholding'hea'riugs'Hurl acceptingstatements on' the periding btllar.orr Gowernment patent :policy) 'Our itssociati0p.strongly endorses uhe statement, made at-the time, S; 1800was'introduced,·that::"it, is "clearly the .Intent of Oongresa-ithat the basic 'guidelines of .Governmentpatent policy should be determined by the Congress" and '.'that the:vreferredmethod. of -accomplishing. this objective 'Is. by· 'the enactment of a.'comprehensivebill rather than' by Indtvtdual-amendment-to every biUauthorizing .Govemmentresearch programs:" , 'J

wethaveetudted.the.bflfs now.before'this.subcommittee' designed -eo establfsha unlform' national poltcyconcernlng-property rtghts.In .mventtons made throughthe. expenditure. of: public funde, We' favor the passage-of. S,· 1809 'and' recom­mend -that it,be enacted,as::soon"Rs:possible:f01."the rotlowjugreasons i

L :S.l809.proposes'·.a-policy,which,recognizes·. thecontrfbutlona or-each of tnepat-ties.

·2;: 801809 .offere-the. heet.oppoetunlty for the .development of nn 'effective andequitable Government: patentpolicy.

·,3;,is.,·18OO'will·prevent. .rurtherdeterioration 'of the .patent system 'by:'piece­meal amendments to legis1ati'On:authorizingresearch'and development. . '

4. is'., 1809'willprovide':a basis',fW- incenti-ves necessary- to. assure that technicaladvances-resultdng .rrom 'Federal: prognams are:utilized -tn- non-Government; areaswith .conseqnent-benentsto -the.publdc an-large." .' .

We oppose enactment of S. 189-9 because itpro:v:ides7:fov(aninflexibleGo:v­emment .tlble-to-all-Inventlons policy;jt'fails to recognize 'theiequftles' oftheo con­tractors; and it can onlvseeve to stifle the incentive ofothe-coritraetors on which.the.Govemment must.depend. We accordingly urge-this s'ubromil?-itt.eei·to.reportae~jslation -which wiH·prov:ide-the ,flexibility:,necessary to':-'\Tarying, :Gove~'IlIhell tmtsatoue.and the, objectives"s:ought,::by:their, research. :.Such'ilegtslatlon- must.. at

;J'OHN:N.,CoopER,' President,'

NOR~~' A;'iERrcA~:'Ayiii~hN,::Ik~:;}'"'El'Segundo, OaUf., MaY·'res; i965.

the: same time, .• recognize;:the.equiti.es~:of",contractors,.a:nd; recipients: cr: Federalgrants.

We ..'are .preparedrto.texpand our-atatementaIn.aupport .of our ondorsement. ot8.,1809 .and our opposition, to So .1899;;::We.havenot-submdtted a.' more detailedreview at this time because we have, followed the statementacsubmltted-to datein support cr. 8.·1809 and-believe they: set forth.adequate .and compellingreasonsfor-the passage of K 1809;rather than the -Inflecdble.and one~sidecl'8,1899.

We; have' drafted aIimtted. number.of-mlnor. amendmenta.toB; 1800 which: webelieve would 'clarify the language, -strengthen.fhe-posdtion of ;our~:G'ov.ernment-and-ourdndustrlea vts-a-vtsrorelgn.governmente and.dndustrtea, and. increase theprospect of utilization of the inventions in nongovernmental fields.

Rather-than extend tnte. letter. unduly;';we:,wilL.be,pleased to-present thesesuggested-amendments- at: the request :,oC-the .chalrnian: or any' member. of, thissubcommittee to.eecncr wnom.rem. sending a ,copy: of-this letter;

Respectfully. aubmttted,« ;

---.----.. ;

Hon. J&n'N L:~'MO¢Lk.h1.N~ .. '. "'~_ ., '..::Ohairman, SUbcofwmiUeeon' Paten'ts, Trademwrks, and Oopyrights, Senate Oom­

msttee on the Judiciary~U.S. Senate,.·Washington, D.O.My DEAR SENATOR MCCLEI,I,..<\.N:'Ve wiJsh,to. srubmit the present statement

in connection -wtth tlle'hea:fiIigs presently being conducted by the Bubcommit­tee on Partents,Trademarks,-and Cop~ights ,o~pr;OPos~d.legi'Silationconcermillgthe d-ispositionof. Inventions artsdng' uiJ.d-er::G.ov'el'iLinent 'contra-cts.'Dhe" cOlll~

mtttee ta-te be com-mended for its thorough etudy ofl-tho.complex patent-rdghtsproolemv.foe. the many nearacgs, ,studies,and",revie~s'itl1asmade over- thepast few years which have culmdnated. in ·8, 1809 in 'the, present Oorngress.

We are pa'rtdcularly pleased .t:hat1ille' commtttee is .attempttng .rto,formulatea uniform' and equitable. ,policy,' for, un oovemoiect agencles.cflexdble tn pracblce,which 'recognizes the need to. ..stdmulate ·the .development .and .1lltiliza,tion ofinventions' -b-Y industry, while .recognaztng. and: .procectdng the pamrrrouncpubjlcinterest in .technologfcal.. growth; .We. recognize. ,thrut:. che.. -Iliresent:diversityof'legislationand,polici~,r'efleets-the ,different histories a'll~'startU'1:loTy,ehliga­

tiona. of -the .. various Government agencies: .bucbhe. resulting thicket 'D.Ow: causesconfusion, delays, and unceotadntdes to- the Government.i and Ito .tts contractorsand-venders -ac.en-ctere.. :,oAt .present; a conteectcr de 'fa-ced:wlch. diffe'cr."'ent patentrecutremente dependingjupon. whiCih.·:ag-ency. he is dealing wlth even thorugh,the's:ubj.~niatrt{'Jr',may be -me: eame. , The' ne-ed for .comprehensivevlegisla­tion- ': and «the.. avoidance: of:ful'l~erDragmemrt;a.1Jionds ftherefore' a'PJ)ai'ent~· andiUirg~nrk,: c".;," ',; "'.":' . ":""-;'."::'~"

.jn developing advanced-new defense .and space systems of' high:beChnMogicalcontent .for tne .Oovernment. Oulr, company,: Telli,es', principally .uoon OM strongt-echnicalcapa'bilLty in meeting epeclfic conbractmal cbldgatdona.and.jtc generatethe.Jsnowledgerrequtred ;to' undertake .new. aesrgomencs, :'. While: O'UT" abililty'· toacoutre the sk1l1s',to conclnue .to. meet ;mcreUiM'llg,ly·complex .techndcal problemsin: .meny dtseipltnes, .is; .our -prlncdpal.rasseb" in .coerrpetlng., In.. ohe-:Government.market, we. nonetnciess-recr. that:pa,wri.t:-fa-0toTiS' can ':play" ,ft'I1TInp,ol"tant"ToleIn. brin:g1i.!IlIg'.!1frteresulrbs .. of -worlc of: companies :Hk~<:OuIr.s.coocher -flelds. "More­over, as a large prdme conbractor, our OWiIl performance ,is'dependent<uponthat •. ot' a ':'great 'number, of, 'stiJbcohtraoto'i'I.s-·· and';;venc:1ol'is.· It .is. 'the" e~pe1"'ience

of DOD and NASA, as well as our own, It!hatJ'a··:patentpolicy''whicli'.causesa., vendoe- or.tsubcontracton -tonfearo' rloss Qf'--'hiler' p'oopi'Ii€ltary' 'poSition :-;is: 'a. :s,?vereimpediment .eo. efficienrt>iadministration:'; and, perfoi:ma,rice' of program:' eesponst­bilities;,- The -protectlon-of the--proprtert;ary <,:posiJtilQri and' eommecctat-etetus ofsuch, .smaller .contractore .'is: t requ'leed. ',not','onlY,"·f&r'irea~oms' cr.. 'fairness','. 'l)utalso for effioioort procurement; Forr·these r<eaisons:'we"ihave' aconttnutngtetereet.In legisla.itil6n:on:'t:h:i'S"subjoot.:,'".;' ,:> ') .',:;""':" -' ",,:'

,Wesh()U1d: Mke:}ooiexpi;ess' 'Our,oorbrrig'; SUptjoriti of: ',tilie:.prfuclple's ,ffiribodIied'- 'inS.:,1809;, ,WebeMeve,:tihey, represent a::soUJid,balancing :of, the inf5erirelated na:~

,tional j,ntelresbs••whlichmusib. be' c.o.niSidered:'- -in::esrtablishing ith!e'pa,tenrt 'P&licde'Sof"tb.'e .Umted' States;·· 'We,"'are' 'suggesting, however," 'cei.'itain: WS.ys,·,iIi. wliioli:w:e"believe, ,pam'ticu1a:r,pr-ovisioillJs;'of,~e [lbiUclQruld '-be;'c!acified 'and Stretl:i-gtiliooCd.

~he:"rutt¥Che<t, mt3iiiorrtud.uhJ:".'prepaeed ',ny, my',staff, '··disCusseS tlhesesugges4;1onsand'-"amplilles','the."chnsridera:'btons- which we' th1JJ::rk"should'bereflooted In-caneff€lCtivi:rsUltut~j!.:L ,i!;:;;'Y.','~: , ," .

'Ve,' ,~'YiSli-_,to '~ssitre1'oiu:of .om' continued: ,vi:1lh:r~ness to 'cooperate,' In.unfaiiiipol'!Uiiliit-,e:ff-orJti ,'of)tJl:ie,~committOO.

';"SiiJJ0erelY"Y°uis',:,i' '"il} J~-'L:," AT,voon;Presidehf;

;mlus ni~o~'rid~~lll,:,alllPlifles, the" com~~~t~: c:~n''tai~ed:'ill, the, acc.o.mpan~ingretter.i., ,iil::'-':'::::', ''-' ,:>,::;,:' " ""',--':'.. : ,

An':!iJnp~tant, problem in ,the di,sposdtdon. ~ of: .p3Jtenrt,:r1gbts, under. Govern­merit .conta'acta 'is;~·,to provide' aI,t erreouvameans. of "tr!l'D!sfex:ring·.J~e 1nyentioosfrom the' .Govermmenc area to .the ofteutllitirely: differ:entcivi1ian -envirorunent.The: t~Sk',iS ,toPl'Qvide: the necessary d,'1lcenti,ves,rto,mventors and .eoeporetroneto brlug new produetsrnto the stream: of .commerce and benefit che people,"7Ihile" pr,eyf;'ill;ting ._' unnecessarz. restctcctone. ;UnleS::;l·. ,this: ... is done the..,publicwiill· not .obtamzhe full, return .rrom.uhe cureent yaSrt. oovemmencexpeoduaresin:R. &, n;'J:ihe· experdence :over a numbee :ofyea!-',s: has been' that euch crans­latton.. .is.,:11requel1OlY. 'difficult, .expensdve, ... and. unsure.. ·P,rodUK'JOO, of __ exeremeteohnlcal.: c()mpleXliJty and soonjsucauon. developed for .,speC!ific. m1sSlion require­menta often have no othee use, and ind~ed,,1Jherirdevel-opment da initially' under­takerr.because. off. the ..absence ofthe1r ..-commerclal avadlabdlbty,

The l.ltilizaJtion. of . developments originating under Governanenc contractsthu~po~.es.more,.diffiou~t 'problems than have been generally appreciated., Iti~ considered .nmc .such UitHization, can ••be.ibest-necoenplrshed wii!h:the .tradt­uoualJnceootvee offered by ,rtfue. patent. system dm ·1Jhe .:'fjramewQ:rlr of QI1Jll.' privateownership .system. However,. where a. coucractor ,is unable ,61' ..unwtlblngo topring 'a patented.cproduet. to .the commercial market a.ft:er a reasonable tameit,is just rtJhat"iJherights be then made avadlable Ito OIt:ihel"lS' -stnce ;the-premiseupon which the ,rIghts rwere granted 'has -not: been. ·fulfilled-and.the public hasnot received full benefit.

:Thereare'stiillo,ther, :areas .whece the. most effective. ,utillizationof .rtoolmicaldevelopments artstng-from: 'Goverrunesjt .progeams can be, best made.tby- In­dustry.. It.is .understood to be natdonalopoldcy .. eouostc-. ehe -exporrattoo ofdefense" information to, frie;udlY countries in thejnterests',<of6ur"'nationaldefense.und.foredgn policy objectdves-and also otoobtadn .a return. on defenseinvestments rrom .roretgu countries. Some ageeementa dn nthis area call ,forcontinuing, cccpeeetron between companies dnvolving technical .asetstance, con­sultation, ,trailliing,l Of'pel'&onnel,:and exchange of, technical data, Such PTo~

grarns.;involving. rt'he,' teeneeer.and, -ucillzatdon-.of h~'gilily .sophdstdcated. technologycanontv be .effectively •conducted. in 'the context of a .prfvate .aseooiation.. ofcompanies. Whdle in many or these .agreememednvolvtng-the broad exchangeof complex unllrtarv technologaee, the technical- data, a,nd·its knowledgeableutilization are :·of pl'inci);lal-llnpo:rltance"parbellftSare .oreen. valuable elementsin the negotdatdon of .. a .. succeseful u'elaclonshdp. In otilier cases, .whdch: involvelicenses of lessee scope, directed Ito specific .products :whose design' could.vbereEj.d-ily, ,·:copi~."fq.red,gn: .patents: .assume' geeater. Importance 'a:s:,tJhe' essentialelement M the, agreenrent. All -euch. activities are tn.ifurtherance of our-rna­tional-, -objeetives; and .the-iT -contlnuanee- :sh6uld l:le uniformly" sane-tioned:andencouraged undel' any new patent legi!slatioli;

OuT study of S.· 1809-,: indicates,1Jhat most of, the policy considerations(li;scussed above and in ,1:11'.- Atwood's -lertJter have, been met. By permittinguhe Goyemrment contractort-a- retain patel1lt- ,rights-iIi' :large: areas,pamcularTythoselool\iing to the commercial markets. the ·,re'slilts"'of' Government IresiearchaetiV'itY··will,be,"m.ade avaHaMe mOIre readily to the'entire €CoMmy,'itilirronghincorporation'in commerciaL products. At the same' time the bill r'ecognizes3,nd·,prOite0ts 'the ,.predominant: public interest 'in ,new, tec,hn:Ology" ill, providingmeans for i-nsul'ing that't!he teclniQlogy 1s in,fuet applied. fOIl~'publi.c'purposes;and', ,Ito :preve:rul; 'the, im]JosdtiOill" of:ullI1'eaiSonable 'resuric/binDs' ontihe USie oftechnology. In: areas' ofpa1"ticnlull' public'-coll'cel"ll',or 'exchlsivepubUcs:ponsor.Slhip:-of :tedmology,', patelllt· rightw may b-ereta'ined",by th'e"Gove:rnmeilt.," ,"Vherethe contracrtor. ,retains',patent ri,g-hlts, ,the'contractor maybe" requirooto grant.Uce..."lses t,o, others\yhen he has not in fact 'placed' the·inventi:on:in the'strE!amof commell"Ce. ' , ,

- 54-40~65----.----pt. 2-~;>·l

;':" Our,)~'Qgge{3;ti:Qna :f9f,c:la,rUYmg:, aJ;Ld U;uPl,'O.:Vi,llg\.~:lb.iR jpc~u.{}.e£ tM"fQH9iW1.Ag:.:In: sectioni'4(aJ:, pmv:ision,for"g·reater use.or adva;n.:ee,(1,:waiveJ;'d~r;"gp,~da,nge

on the applieatiou of the crdteraa, and adm:ifn.ri,s1Jrar1Jive and j'll9.'~~Q.J,revi.~w,'.Qfagency, determinataons, applying i this,: section ,;.: Injsectton ~Jb.),: ~ mQd!i-4ieationi o-fnhe requsremeec that a contractor must have ,an;:est:abli~l!-ed·.,u:t»J,g9YeJ:'!WlllmmIcommercial poetuon in ocdceto retain principal ,rights; aJ:;l~~~ti9fi,8,;~m'pvision

for', ,the,royalty~free', licensing to a1'1 U.S. natdonals of those patents In whdchthe United States will retain title,Ullder,:this~bjll.

Section 4(a) delineates f?ur criteria, under ,whdch the L'lltted Sitates shanacqui-re'tlheprinc-ipal cights~qn any invenltJiO(ll' made" under·'a:"'c:o-ntract..Th~s-e

ortterta.are broadly etated and jn ceder to insure ,thei,r application. in a ,lJ:Ibif0["mmanner, guidance., sho~ld·'be-'given -es- to' theh'" -appl~c3JtJj:on.. In: :pa'l'rti~ar;: thecategorses nJOw:,require' 'the"dis-posi:bi0n"'(}f'i:rights ·,rot·the. time "of;'"C0Iiltlractingbfi.SeO. '.. upon>the. purpose. ,and' -' the; ,toohnol()g;y.' of. 'tJie' ,contract. ,:The·..'nacuee ' ofinventions actuajtymade-uederothe contract.fanot a, facUlt"'" HoweVeri.' suchinventions. may. eelate' ()lllY :incidentally, to'tftie, broad 'purpose: oe .te<funDlogy .. ofthe -' 'contract. . For;: example; ..in!an:' a'dvanced--,sva:e-e," pr;ogram,-;;;' IDvenI!ioills, :aTeflrequently' made-on' such things as ..,valves,'. fasteners;: and', weldiIl.g; 'bechndqueaIntwhdcha- contractor has un.ecdstdng patent' or·indus~r:ial'posiJti:on... ,Therefore,provision .Slrould be made-eo': thfi.tthe -Govemment would •. noc·.be.:required· .toacquire exclusive.rights":in those:"iJ:i,venrt;ionswhich 'ere not of "a·' d:cmidnantpublic interest undec- secbton 4{ a:)''.'cl;,iteria.

In addition, UberaUzation: of -the 'pYovisiomii" .m-eectfon '4(a') to': provide ':foradvance. waiver. of .Govemment :rights in mventronenttnectme of-contractingis recommended. ..·.Thi-s-'.wouldc?nSliderably. ease negotaatdon and admirui~trationof.i.Government contracts. In SUJbcontracting',fOir·example; we .'find that nsubcontractor wishes -to . establish <hds.. rights atlthetJi:lhe""'or -oontractbi~",toavoidruncet-tatntdsa and .time-consumdng procedures fOl",'obta-ining.\yaivers' .<)neach Inveutlon.. 'l'he·pl'ompt <filing.or -pacent fiPplica-tions' would also' be-en­couragoo.·· and Under' this proposal ·t:he Government would suffer no:' loss, sincethe val'liorus,safe-guards'of,,'thebill would still- be 'retained,

While review.of agency.determinations is desirably provtded for in niost.c~ses.review is apparently' not contemplated: for agency action underisectdon d'(a}.'Dhisapparent absence is unnecessarily severe, wOUld'den;V the customary revie"Yof procurement agency.officers' decisions, and. would not 'promote uniform. prac­tices." B'lnally.. aectton 4 (a) is moee-restzlctdverthan the corresponding" one inS.,'129(L andwhlle it is similar to a section in the President's memorandum' ofOctober 10, 1963,itdoes not have the flexibility of that section; . Section l{aiof the President's memorandum. .arrec- listing-the categories-where the' Govern­ment would normally acquire exclusive rights (virtually .Identical with" sub­paragraphs. 1-4 orsec, 4(a)}" goes on. to provide thatvgreatert-rlghts may-beacquired by the contractor after the invention has been Tdentifled, where 'theinvention is not a -prlmary object Of the contract.rand the acquisition' of greaterrights is a necessary, incentive to further investment and development.

Section 4 (b). provides that In contracts callfng ror work in a fleldof technologyIn-which the contractor-has an existing technical position and competence he mayordinarily. retain exclusive rfghts. However, a.requtrementror. testing the, co11­tractor's technteat eoropetonce 'in' such field is .that he have' 'fan estabnsned-non­governmental commercial position." "I'here are strong.poltcy considerations formodff'ying..this requirement by .rererrtng. instead -to -a contractor's, tnduatrtal' orpatent position. ':['he principal consideration is that it.wouldhelp the gr0w1:h ofnew and often small companies' and also: the: ':diverSificatifon. of ::those'tcompanleswhich-are now largely reliant on Government: contracts, It would also fosterthe .wlder distribution and utilization -of Government-developed technology:

A fur-ther suggested revision is directed-to the.uttltzatfon of paten:tsa?Clui~edby' the United, States.:The, text of section 8(b ),\vould sanction the licensing ofpatents,for royalties-by .the.Unlted States and section 8(a) the bringing of suitsroe pateutfnrrtngement against citizens of. the Unlted. States- by the .AttorneyGeneral;' It.tsbelteved .that.such activity by the Government would be ineffectivein practice and would bethe source-of utinecessarycontroversiesand'litigatiolLItwould clearly .. be-Inequitable .to deprive the dnventor-contractor -of an.tnventionon the basis that- it- falls within one of the categories of section;4(a) ,andthafliehas insufficient ,equities to retain an interest therein,and then:'grant:the rightsto' another' person";with even less. equity.

THEUNrVERSITY OF TENNEsSEE;DEPARTMENT 'oF PHARMACOLOGY,

Memphis, ,Tewn., A lIgustSO; 1965.

lVIo.reov~r,the agency in granting exclusive Hcenses in Government-ownedpatents would be undertaking to direct the course ofprivate.tedmology and.'predictrthe course of competitive trends. Few of the 'agencies have bad therequlstte experience necessary to analyze. the course of future development inclviltan areas of technology and in general are not equipped to make determtna­ttone where competitive market forces are, primary factors. If the contractorkeeps title and is required to licens-e others- upon his own faHu~e to exploit theinvention,as is provided for in' the bill, the pub-lic is spared the cost of, payingfor .the Government, admtndstratdon of a licensing program, and further the con­tractor, whois most like'ly to explott the.invention, will be given the first opportu­nity to do SQ. It is _recommended, .therefore, that allinventlons owned by theIjnited Statesshould.be freely available to ajf tj.S. citi':zens and corporations.

Whtle the foregoing, are ti;i-,e prlnctpal revisions suggested, there are otherchanges "of a, rume" technical, nature" which .will, not, be apectflcally commentedupon, :1fthecol11mittee wishes we,'.vouldb,epleased to, furnish 'the text of .Ian­guagewhich wouldaccomplish thechanges suggested above as .well as other moredetailed changes, " ., "

HO~~,JOHN D: MCCLELLAN;Oommitte,(J ~Pate1'ltt,~,'U;$~',:$eit:at(J/':. ;,';waB1~mgtp,n-,,P/J;

DE;AR SENAiOlt :MCCi.~Lt'.\N:First permitnie to express my appreciation forinttdeting arrangements., whereby my. request. to appear berore the committeemight be honored.. I do wish' to take this opportuutty to express my regret thatitW~s necessary fer me, to ",ithdra"" my request to appeal' on Tuesday, Angust,17;However, tbel?harmacology meetings ill Philadelphia rel;iuired me to be there onthat day. Therefore,I will attempt to present to you in writing my views per­taining tobill,S.lSo.9, whicilcurrently is being considered;

'l'his,bill~ rum.ceetntn.o-eproecnraa ,great deal of thought and-effort and Iconslder .it .to be. far super-lor to others such. as.lS99, submitted by .Senator .R,us~

sel Long. , "First, possibly, I should introduce myself. I am professor and chairman of the

Department ofPharmacoiogy at the Dnlverstty of Tennessee Medical Units.Memphis,Tenn.-,a position which I, have held since )947. Previously, I held 11similar chair at the University of Georgia College of .Medicine, Augusta, Ga.lam a member of a number ,of scientific societies, including the American Societyf01·.: Pharmacology. & Exp,e:riInental Therapeutics, .. American Society of Phy­slologists, American Heart ,Association, Sigma Xi, and Schwtzerlschen Vereinsder Phvsiologen and Pharmakologen. Lhave conducted an active program in re­search in many fields and have published widely in, several fields. I have nodirect connections or positions' with any pharmaceutical firm.. At times, I haveserved as consultant for NII-I and U.S. Food and DrugAdministratfcu.

As a. citizen, ,I. recognize that definite .clarification is proper and necessary. toprotect the Federal Government and to establish reasonable policy and lawswhich will permit and encourage. industry, the Government and the scientiststo work together to develop .lrnowledge which. will provide all of us with betterhealth and better medicine.

As Iread,'the":bill,I was disturbed by sections 3 and 4. Section 4(a) (2)states that 'the exclusive rights shall be acquired by the agency head in behalfof the United States at the time of entering into tha contract.when-f p.Y, line4) "the purpose of the contract is for exploration into fields which dlrectlycon­cern the publlc health. welfare, or safety," Practically all work dealmgfn them-eanr medical. sciences; could be consldered.dtrectlv concerned with the "publichealthc welfare, ()r,;~afety. . 'J'11is .' means that the .agencyhead, in order to, pro:-:teet: himself, must acquire .flJ the. ttme of entering illt/) a contI'act, principal-Hrex(?l,lJ~jve .rights. to .theinventions made, by. the contractor.. 'I'rue, this. broadinterpretation may. not .. he given to sectioll.4(a) (2) and.. yet, agency heads .inthe '. Government must .be .. conservative concerning ,SUCh" 4~isions...: My e:xper!­ence has been that agency heads protect themselvea and they can be expected

to .acqutre these exclusfve.r-ights very widely, ,if .not in all cases tuvojvlng nreasof research related to medicine., , ' " """ "", " f" " " •

My experience and parttetpation in research extends over a perlodof approxt­mutely 40 years. In the early days, my support was, entirely fr0DJ. the universityand .trom industry. As the economy of the, Nation grew" aucl VO'&si1:lly as mycontrfbutiona Increased, ,I received, appreciable, governmental ",as .well .as. indus-trial support.. , ' '., '", ,,' , .: , .. ,'

Any bill which ,is passed by the Congress .should not interfere or preventscientists from getting support from many sources. It would be a most seriousmistake, to force the, scientists of, this. country to, depend .enttrely on the Govern­ment or entirely .on "industry and research foundationa f'or .their support.. Asscientists,we need the access to the new drugs and new chemicals which Indus­try manufacturers, since they are, frequently our tools whereby we ,learn, rcoreabout disease processes. As I .read thia.btll and think back over my experiences,it appears to me that this bill will tend .to force many scientists, to either acceptGovernment money, or Industrial money, .but. not ,both. ",I,nventions.,are',frt::lJ\le,ntlythe result of slowly developing ideas which mature into defi.nite-,fnvelltioris~ Itis often impossible to be certain of the portion of the invention conceived whileworking under an agency or while working under contract oil a project financedby a pharmaceutical-firm, or while working on university supported programs.'I'he most profitable 'and: worthwhile .. research is frequently uccomplfshed whenthe scientist and his associates are' investigating a disease process with Govern­ment and industrial laboratory support and when they are ~using,.tcots in the, rormof drugs or new chemicals to determine their effect on this disease.process.. Thesenew chemicals are often the key to providing new information on the ,pathqlogyand physiology of the disease. Under the regulations, as presentedIn .1;ligJr1S09,it seems to me that scientists will be forced into the awkward situation where theywill have accepted, in a sincere-manner, financial support from the Governmentand from an industrial firm, and then find themselves courrontedwtth a situationthat they have made a discovery in performtng studtes supported hythe Govern­ment. industry,and. the .university. It is'.more. or .less like .whether .. breakfast,lunch, or dinner was the meal which madea bovgrow into a man. It is royfeeling that. the ,univers~tyhas definite rights and;r~sponsibilities and. theseshould not be denied to them by a blanket .clause requirtng al1disco\"eries tobecome exclusive property. of .the .Govemrnent; .Many universities have bene­flted from a wise policy pertaining to discoverles-c-the Wisconsin foundation Iean excellent example.,. .. ,. .... . .'" "';', .. " '.

It is my sincere hope that the bill can be so fornlu~at~q., thatJt will not removethe. stimulus of granting. fina:pcialre'wards to productdve efforts and. will, net tn-.terefer with cooperative programs involving. support 'from . funds j'rom severalsources. I know that you recognize the contrI;butimwthat American ,i~dust~y

aud. private enterprise. have ruadato the. improveDlent. of "medicine under thesystem which has been .operating.. The private E!:nterprIsesystem. mus~be We"served while we are protecting the Governm~l1~imiestment. I feel that" the btll;as written, will hamperthe development of new drugs unless a means is foundto provide more freedom for the;f:;c;ieD;tist toiltiH~e ne~chemicalsandne'yd:rugS,as well as receive finan,ci~ls:upportfro'IlltheGovernment. . . ,

}lost sincerely' Y,0111~S, ' ' ... " ...RO~ERT A, \VOODBURY,J\fIl:.'Ph. D.,

:Pr?fe8801··unl'!·Ohu:irrnQln; .

PATENTS, TR-ADE~MARK,& COPYRIGH'l' SECTION;. .. STATE ,BAR OE-TExAS.

JUly 6, 1965.SenatorJorrrr D.MCCLELLAl'!,U,S.S.en.ut,e,. .lYa8h'ing~on, D.D.

SIR: .In my capacity. as chairman of ... the. Patent, 'I'rade-mark, &' CopyrightSectipn of the State Bar orrrexae, I am herewith transmitting to you for con­sideration.byyou and ,your Subcommittee onP,atents, Trademarks, & Cqpy~

rtgntsot. the.Commlttee on the Judiciary six copies of two resolutions passed bythe.Patent, 'Trad~mark,;&Copyright Section of the State Bar of 'I'exas at Itsla$t,\ftjrl)'l1a~,llleeting.o.nJuly?, ,1965. One of:these resolutloris seta forth the Views

MELVIN 'F;' FiNCKE;' Gha'irma'!l'~'

of the" sec~io:h.r'elative;to' bill ~L18?9 introduced, into the 89thCongi·ess. by-Sen­~ltor" 'Lon~: .and' 'the .-other reeorunonsets forth .thevtews of ..the: section ' relativeto bin S. 789 intro~uCed-bY Senator Baltonstalland btll.B. 1809 introduced by you.

The' section' hopes' that' your su~committee;and'ultimately the Congress;' willadopt the views expressed tn theseresoluttons. .

,Verytrtilyyotirs, ,

RESOLUTION

Whereas,' the Patent, Trade_-mark!.& "Copyright. Section of the State Bar ofTexas believes that progress, advancement, and the public good' are best servedby private enterprise rather than by Government intervention or ownership; and

Whereas the Patent, Trade-mark, & Copyright Section of the State Bar -ofTexas believes that the patent system' has demonstrated over the past, manydecades that it affords a vital and effective incentive to private enterprise toassume the economic risks involved in developing new products, .Irr.Introduchigthem to the public, and then promoting their use; and

'Whereas the Patent, Trade-mark, & Copyright Section of theBtate Bar ofTexas is convinced that the Government cannot and should not assume a monop­olistlc postion .with respect to the exclusive rights afforded-by the patent gi-antand cannot and should not undertake the introduction and exploitation or newproducts in the public marketplace in competition with private enternrtse : and

.whereas bill S. 1899 has been introduced into the Senate of the United Statesand has, the purpose 'of (e.) requiring the United States to take exclusive rightsand title to any invention made in the course of or in consequence-of any scientificor technological 'research development or explorati-on activity and resulting di­recting or tndlrectly .from any contract or lease entered into or any grant madeby, or on behalf of, any governmental department-a-gency ;,and (b), establishing inthe executive branch. of the' Government a Federal. Inventions Administration:Now, therefore, be it

Resolved, That, "the Patent,Trademark, and Copyright Section or.tne StateBar of Texas (a) opposes the, extreme and inequitable approach of bill S. 1899introduced into the 89th Congress toward inventions resulting from GovernmentCOntracts ; and (b),oppo-ses the establlshment ofa B'ederal Inventions Adminis­tration as needless, costly, and against 'the best .ruterests. of ,this country and-theprinciples" upon .whtchft.was founded.

"",' ',,:HOPE,COLLElGE,H oUa1td" Mioh.,; J,uly.27,.1965.

~on.JOHN.,Mc.c!:-E:LLAN:, ,',' ' ". ,,', .:'Ohairman, ,Suboommitte(1 on Pa,tents, Trademarks, and.,aopyriglbts ot the, Oom-

mittee on the JUdioim·y.:,U.B.,Sen.a.te,Washington,p.O. 'DEAR SENA'£()RMcCLELLAN:ln,your concern with the--biUs,S;789'(Saltonstall),

S. 1899 (LonghandS. 1809 (M.cClellan},.I thtnlcyour.btll, -S.1809;-'issofarthebest compromise between Government anu.pclvate Induscryand-the extent ofcontrol each.should -have on patent, rights; Amertcan-industrv.vwith ,its tnven­tlvenese, research; and" produetton, ihas ,found competttlon not, only; the spark.fornew ideas but a necessary weapon for fighting the evil 'of"profiteerin'g.- Bill-S.1899 seemsco restrict research, and .industry in aiway by placing patent rightsin 'the hands of the: Government whenever anr Govemmenamouey ts used in anyway in the research or productdonofa thi:ng~

This 'seems an unnecessary klnd-of .restrlctton since .all: private property-Issubject tothe right of.emlnent domain in' the Government; and may be taken.dnpayment of fair compensation, whenever a genuine publte need j,gdemonstrated.",Scientific:illdustry, and -technclogymust make 'prcflts to help guarantee furtherresearch and to pay the often high -costof manufacturlngietlf rsa moot questionwhether the public is more greatly beneflted flnancfalfy by paying the' margin ofprofltover.theoounteror by-paying possibly larger amounts through taxes. Fed­eral research expenditure for 1958 was over $2% billion. It would be interestingto know comparatively the number of new discoveries from eesearch resultingfrom Government-sponsored research as contrasted with that of private research.Private pharmaeeuttcal industry, for instance, has developed and discovered; most

of our .new lifesaving drugs. ,,",Vemust protect this klndofresearch to, thg bestof ourehlltty wtth-apatent law 'that fires ra'ther, than deadenstncenrlve; Yourbill protects industry in 'its rights as does S. 789 to some extent, .out. S. 1899 would,be duplicating at the taxpayer's .expense sucnresearcfi activity .that could andshould be carried on by industry and 'other prtvate agencies. '

I should like these remarks made a part ,of your 'hearings 'eecord.; Le., that ofSUbcommittee on, Patents, Trademarks, and Copyrights of the Committee on the,Judiciary.

Sincerely,C. A~ VANDERWER~',

President of HopeOoUege, Proteescr. ,ofOhemistrY.

WESTERN ELECTRONIC MANUFACTURERS ASSOCIATION;Palo ~lto, cout., July 30,1965.

Han. JOHN MCCLELLAN',Cha-'il'man, Senate J~tdicia1'Y Su.bcornntittee on Patents, ,Traa-ernarlcs" and ooov­

rights, U.S: Senate, Wa-shington,D:O.DEAR 'SENATOR MCCLELLAN::I am takingtbis opporbuni'ty rto write to you' to

express the viewpoint .of the WesterntElectronlc Manufacturers Associationregarding the 'Proposed Iegfslatlon on patentapendlng before your subcommittee..

The Western Blecteonlc-Manufacturere Association fs- n. triide assoclattorr 'ofcompanies engaged in electronic manufacturing ,'or electrontcceseerch und de­velopment in the 13 Western States. Our total membership today is' 360 com­panies. These range in slze from 'small companies to large corporations.

Some of our member 'Companies employ' many thousands of persons mid havebeen important prime' contractors in the Government's defense program. How­ever, 'the majol'ity arc smaller flrma which have servedas subcontractors or-com­ponent' 'suppliers. These 'companies are technologically baaed taud.vdependentupon their individual inventiveness and improvements in the stateof the art tomaintain a position in .thts .competitive market. Accordtngly, our assoclatdonhas 'a vi-tal Interest in the subject matter of the vesting or patent r-lghts developedunder research anddevelopment contracts 'with 'the Federal Government.

For rome time we have-beenopposed to -Senatcr Long's -unequlvocal' posttlonthat: the .Government 'should, .bc entttled jto exclusive patent ownership, Hispending bill S. 1899 ignores the fact that if American ind-tiSltry is to apply, itsaccumulated technology 'and know-how in the soluti-on of developmental prob­lems, tt muet beafforded patent protection 'to maintain vi'ability and. be of evenrurthertservtce ',tQ' __the G-.o~",ernme-nl1, Moreover, the' 'incentive of -attaining oft

proprietary poeltlon must be offered to stimulate the growth 9f Sllllu-ll :busines~.

Senator Saltcnstafl's bill s. 78~ 'presents 'a much, sounder ,iIndel'staJ,ldiAg 'of therespective needs 'of -Governrnent.,and private i-nd~y" 'au:d,equitrublepa-tent:Iegfs­lation could be b'lJHton 'the fundamental potnts set forth,

We heartily 'endorse'S. 1809, which you 'introduced, becausett. is a well­developed lbiU"\Vhich,recognizes the equities of -the joint eff'ol':tiby'industry andthe Government under·.rese-arch:and·.development 'C'ontracts~. ~s in' the' state­ment of patent.. policy' isSlled. hy the-Preslderst.: this bill 'analyzes the severalsituations -which-can.exlsf 'and.establtshes equitable criteria for. distribution ofany resulting patenc-rtghts.

However, we suggest-that the biUbe strengthened to establish deflnittve rtghtsat the time of contractlng.rto-glve 'a potential. contractor- ·greab~r. :issuran~e. 6fprotection in the- area o:f self-developed "~eehn'Ology, Perhaps some of theIanguage of S.' 789mighi'tlbe helpfulIn.thla regard. '. . .'., .

We .also-feel that the. bill, should be- expanded, to .dneure the. protection ofInventions "from foreign exploftatfon. .

'I'hank you for Jthe oppoi'tullity .to, present this statement iribe-half .·of theWestern Electronic IMan,ufacturers .eesociaeton. -

Sincerely"W.iH.-· IIEFLIN, .-President;

)V;~S,T~!'iGHO.uSEl ,E~~o'c.m;,, ..,... PA~NT. ;oEPART¥J!l~T,. ,

PitWbwr:Uh,Pa;'IMay ~4:,.1965.S. 1809 ()\icOlellan).Hon.JOHNL;McOLl1:L:r,.AN, 'U,if:.Bmate,.-Wa8hingt,On;D.O.

DEAR MR. MCCLELLAN: We have studied carefully S; 1809 dealing with the'dtsposttlon of rights to inventions made underGovemment R. &'.D. contract.

We-believe that the obectives sought-are sound and that the approach taken issuch, generally speaking, that substantial benefit should-iresul't-to-the-generaleconomy, the Government," and contractors .If the subject bill' should be enactedinto law and administered reasonably.

It would only be natural, T suppose.vthatrwe would prerer--some changes inspecific language. We, therefore, take the Uberty, of 'Suggesting 'Some .majorpoints where we think confusion may arise Or problems may develop in' admin­istering the bdll If it should he enacted as introduced.

Referring to eectlon B'(b) (5), the.determination 'of reasonable terms and con­ditions, and, perhaps, the granting of, compulsory licenses is placed in 'thehandsof the agency Jnvolved. Itwould seem to us that it might be a~iranta-geous fromthe Government standpoint as well 'as' from the public benefit" that the agencyhead do no more than "supervise" the granting of such licenses. In this' manner,the burden would-be transferred from the agency head to the contractor In anarea where we believe the contractor would be more than happy .toussume theburden. 'It is suggested that lines 3 to 11 be revtsed as indicated inthe followingwherein insertions are underltned 'and deletions are .lfned out :"terms and conditions subject to reoieio by ee the agency head "fftftY':t3res&ifieupon -adetermlnation made by such agency head, after affording the' oppoctunltyof, a 'hearing to the' owner of those rights, that (a) the owner of those rightshas not exerted .substantial -effoets to bring the invention to the point or practicalapplication and (b) the public interest' would be better served by requiring tlteowner to Incense one or more the ~fieetB other persons ef HeefiBe5fffl'-tfte topractice ·etthat invention ;l~

Referring to section3('b) (8L we note that there is no excuse whatsoeverpermitted fo:r fatllng.promptly.andfully to report an Jnventlon. In view of thesertoua penalty.: Le., forfeiture, involved and-because reasonable me-n can welldiffer on reasonable time for .reportdng .aa well us .whether reporting is, required;we would urge that, in line .12"onpage'6, there. be inserted after the word"Icnowlngly" the WOTIls: "and ill bad faith".. III 'support- cf che above suggestion,it is noted that conceptions. and 'first actual reductrous.to practice rorm ruccestafor reporting of inventions. As .a .qulck glance through board of Interferenceand court decisions on interference 'situations will disclose; it is orteunot, easyto determine when a conception has been made and when.au actual reduction topractice .haa been made. .l\!IallY, rnterrerenceeann. court . Cases 'hinge .onmesedeterminations and, since there is usuallydnvolveda queaticnof -judgment. withrespect to whtch.iattorneys w:illdiffer,~t'j~ibelieve(tJhata sort of "rule 'Ofreason" Should be applted In-thie.area andchabsevere penaltdes: shouldnot.beenforced unless all element of ':f1J;'aud Is-present.

Referring .to aecttou 4(a), the proposed bill provides that: the "agency 'headsball.uequlre" certain right,';!.. It may ,lbe', tha-ttherights .Involved are not worthacquiring 'ilDdit may be useful from the standpoint of econcmica.ttffor no .ctherreason, that title be avoided and theneceselty of, or-at -least adecislon concerntng;the filing of patent appiicatlons be avoided. You might like to 'COlieider Insert.lagin lint;' 20 on page 6 after uhe wordvshall" the words "eeserve the right to".

Referring-to 'section 4(a), and more particularly to-the crtterla.ddentlfled asjustifying tlletaki:p.g, of principal nights, there are certadn ambtguttdes 01' at leasteertaln.degrees 'of.dndeflniteness which, in our oplnlon, areItkely.to cause futureproblems,

Referring .to subparagraph (1) l.it would'seem,~ous' of doubtfulvalue for.theOQverJ;lm,eJ;l,t·.to,a.cqu,i:re:title toall inventions' made merelr.because theInventron ~

may be,.-J·e(11.iir:~.:r(jr,:,·:#i1~:,::by'gbvefum:etiklregulations. In, this connection" wewould ,di.S.ti)lgWsb:,·:;fdt'."e::x:a:lllple, between 'a contract having ae an object an im­proecment oc 'cosc reduction 'or some other minor modification or a well-kno:wndrug such as "aspirin" as distinguished from research directed to a ~igni:ficantly

important medical advance such as a cancer .cure. The same approach is appli~

cable to subparagraph (2) where you might distinguish between an improvementin stair treads to minimize the danger of slipping as compared, with a devicefor absolutely-preventing colltslons between-vehicles. :To, soften the impact oncontractors wtthout . disadvantaging the publfcc.both of these, criteria might berestricted.·to,'·improvements",or tnventtona.or.cnttcea significance .In connectionwlthfheend-objectlve.

ThUS, rererrtng to section ,4(a): (1), .we suggest inserting in line S. page -7afterthe word "regulations" the words "provided thaLsuchproducts, processes, ormethods are of critical slgniflcanca.and that no reasonably competitive .Item isreadily -avatlable,' , ,'" . ~'. "" .' ,,'

In line 5, page 7 (sec. ,4(a)'(2»), we urgeJnsertion,fo,Uowing:."concern"tb,ewords "and are of critical significance in .connection wit:J;t.':':·:

Further, with respect to section4(a) (2), tile Word "welfare" Is.so general asto be indefinite j. we recommend deletion of that word.

Referring to subparagraph (3) under, section 4 (a), there will certainly be somedifficulty fn .determining. whether the .Govemment is .the prtncipal or prime de­veloper of a field, For this reason; we would urge conslderatlcn ofIhnttdng. theappltcacion of this ..subparagraph to those situations. wherein. the Governmenthas been "substantially the sole" developer.

Again, in this samesubparagraph,the Government may acquire greater.nightswhenever the Invention vmight" confer on the .emtraotor a "preferredor domf­nant position." . It: can be argued and has been argued under the present DODregulations that every patent confers a preferred position. Indeed, this is: thepurpose of the grant of a .patent. ,It is not this .sort of preferred position .whlehyou .have in mind, I am sure, and, sfmflarly, others who have proposed thtetypeofJangllage uavonct had thtaJdnd of dominance in .mind.. Therefore, ,~t:.is

believed. that it would be hetorul to ecworu.tnts critcnon as follows: ."rights at the time of contracting is likely to confer on-the contractor a dominantposition .".

Referring to section 7, we note the possibility that -the agency head may directthe .issuance·of.a patent, to .the Government-In situations. where the contractorhaaalready filed a patent application. We would urge consideration or suitablerelmbursemenc to the contractor in such a sttuatton.

Referring 'to section. 8,' 'we would anttelpate-conslderable proteat or at leastadverse comment concerning the' requirement 'that agency heads shall afflrma­tivelyprotect and preserve the property rights of the United States in patentsowned by the United States. , Itcould be argued that thepToperty'righ~carriesthe privilege of protection and preservation and, therefore, it would 'be betternot to insist .that the Government prosecute U.Kcitizens for-using patents issuedforthe benefit of the U.S. publfc'at-Iarge. ,

With 'respect to section' 8 (b); it 'is' noted that the a~ency head. cannot In factgrant. an exclusive' license because the contractor 'is :granted a reserved' non­exclusive license. and, presumably. the Government. should retain-a. nonexclusivelicense-for its own governmental operlltions;' :In'this area, Le:,exclusivelicensing,we would urge a.-careful' study be .made because, .at·<first thought,' it· appears tobe .repugnant ·to·.argue· that 'the-public benefit. requires the taking'of exclusivertgntarromfbe. contrac.X0ronly .to.vtn-tnm, pass' on those exclusive 'rights toanother citizen' .or' 'U;S;~based· firm. ,It:'is .ror this 'reason that many believethat any ctttzen who' wishes': to ueea 'GoveriInilent~heldpatent should' be-entdtledto a free, nonexclusive license•. , ..": . '. .' ., .".,' .,'-

Referring' to -lines 10,andll on. page 15;, the; license; provided -theretn ·rllaY--begranted wttn.orwttbout .the payment of royalty to the. United, States. Borne ofus. fear that this type. of language can lead to. govemmental-regutatton'rif-fu­dustry,~ bytdetermtning who' can have -a.ucense and-how much' he may have', ~opay.;' -It.bas been. advocated; for. example, that the'Qo-vernment· grant exclusivelicenses to u small company to help it grow larger and then when it is largeenough to stand on its own feet, the license would be taken away and given tosomeone. else or the royalty rate would be increased or some other step taken to

LONDON; JuVy 3,1955.

remove' amy advantage it might have. Many fear this type of Government entry:into the control of the business of the Nation.

Referri.rig to section 9, provision is made in subsection (b) that a report and:'summary of findings be made with respect to those inventions wherein the agencyinvolved has acquired no greater rights than a royalty-free Itcense.. No suchreporting is required when title is taken. In order to avoid the burden of mak­

. tug reports under license situations, contracting officers may well have a tendencyto press for taking title wherever possible in order to avoid this reporting func­tion. Moreover, for the reports to be of greatest value to Congress, it wouldseem that similar reports should be made with respect to situations where theGovernment has -taken the principal rights. For example, such reports wouldbe valuable in determining whether the various agencies are reasonably apply­ing the various criteria. Therefore, we would suggest the insertion of a sub­section reading as follows:

"I'he number and general nature of such inventions with respect to. which theagency acquired greater rights than a royalty-free license in accordance withsection 4 and a summary of the findings of fact upon which' a rletermtantlon ofthe applicability of sections 4(a) (1), (2), (S) , or (4) was based."

,Ve sincerely 'hope that the foregoing will be of some assistance to you.Very truly yours,

T.L. BOWES,General Patent Oounset:

Senator JOHN MCCLELLAN,Senate Subcommittee on Patents,TVashington"D.O. :

I regret my inability to appear in person before your committee for I· spentmany months during my term as President Kennedy's science adviser exploringfacets of Federal patent policy. Sound Government policy must be flexibleenough to satisfy both private and public interest to provide maximum evan­ability of invention and technology for defense, and maximum incentives foreconomic development as well. The patent policy memorandum ofOetober 10,1963, reflected a careful effort to balance these requirements. It; was the productof coordinated study of the Government agencies which must enjtstcontractorsto perform their functions and had the endorsement of those agencies.

McClellan bill S. 1809 would implement thls balanced and equitable policy, ifpossible, I would appreciate having my 1963 testimony and .responses to ques­tions before Senator Long entered as testimony for your hearings.

J. B. WIESNEN,Dean, School of Science, MIT.

o

,"I